Fundamental Strengths Annual Report 2008
CITIC Pacific Ltd 32/F CITIC Tower, 1 Tim Mei Avenue, Central, Hong KongTel: +852 2820 2111 Fax: +852 2877 2771www.citicpacific.com
Stock Code: 00267
CIT
IC P
acific A
nnual Rep
ort 2008
Contents
1 Financial Highlights
2 CITIC Pacific’s Fundamental Strengths
4 Chairman’s Letter to Shareholders
6 Business Review
6 Special Steel
18 Iron Ore Mining
28 Property
40 Other Businesses
44 Financial Review
54 Treasury Risk Management
67 10 Year Statistics
68 Human Resources
71 In the Community
72 Corporate Governance
80 Directors and Senior Managers
83 Directors’ Report
Financial Statements
102 Consolidated Profit and Loss Account
103 Consolidated Balance Sheet
104 Balance Sheet
105 Consolidated Cash Flow Statement
108 Consolidated Statement of Changes in Equity
109 Notes to the Financial Statements
177 Independent Auditor’s Report
178 Major Properties Held by the Group
180 Definition of Terms
181 Corporate Information
Corporate Information
Headquarters and Registered Office32nd Floor, CITIC Tower, 1 Tim Mei Avenue
Central, Hong Kong
Telephone: +852 2820 2111 Fax: +852 2877 2771
Websitewww.citicpacific.com contains a description of
CITIC Pacific’s business, copies of both the full and
summary reports to shareholders, announcements,
press releases and other information.
Stock Codes
The Stock Exchange of Hong Kong: 00267
Bloomberg: 267 HK
Reuters: 0267.HK
American Depositary Receipts: CTPCY
CUSIP Reference No: 17304K102
Annual Report 2008Our Annual Report is also available as a Summary Financial Report. Both documents are printed in English and
Chinese and are available on our website at www.citicpacific.com under the ‘Investor Information’ section.
Shareholders may choose to receive the Summary Financial Report or the Annual Report in printed form in
either English or Chinese or both or by electronic means. Shareholders may at any time change their choice
on these matters by writing to the Company’s Share Registrars.
Shareholders having difficulty in gaining access to these documents will promptly be sent printed copies free of
charge upon request to the Company’s Share Registrars.
Non-shareholders are requested to contact the Company Secretary, CITIC Pacific Limited, 32nd Floor, CITIC Tower,
1 Tim Mei Avenue, Central, Hong Kong, by fax: +852 2877 2771 or by email at [email protected].
Share RegistrarsShareholders should contact our Registrars,
Tricor Tengis Limited, 26th Floor, Tesbury Centre,
28 Queen’s Road East, Wanchai, Hong Kong at
+852 2980 1333, or by fax: +852 2810 8185, on
matters such as transfer of shares, change of name or
address, or loss of share certificates.
Investor RelationsInvestors, shareholders and research analysts may
contact the Investor Relations Department by
telephone at +852 2820 2004, by fax: +852 2522 5259
or at [email protected].
Financial Calendar
Annual General Meeting: 25 May 2009, 10:30 a.m. Island Ballroom, Level 5, Island Shangri-La Hotel, Two Pacific Place, Supreme Court Road, Hong Kong
1CITIC Pacific Annual Report 2008
Financial Highlights
Profit attributable to shareholders
-2,000
08
(14,632)
07060504
Foreign exchange loss
HK$ million
1,970
10,8438,272
3,534 3,989
Group segment assets
28%
25%
18%
29%
39%
22%
10%
29%
Special steel Iron ore miningProperty Others
2007
2008
Increase / In HK$ Million unless specifically indicated 2008 2007 (Decrease) %
(Loss) / profit attributable to shareholders after tax (12,662 ) 10,843 (217 )
– excluding leveraged foreign exchange contracts, net of tax 1,970 10,821 (82 )
– leveraged foreign exchange contracts (loss) / gain, net of tax (14,632 ) 22 (66,609 )
Major businesses’ contribution Special steel 1,617 2,242 (28 )
Iron ore mining (123 ) – N/A
Property – Mainland China 523 197 165
– Hong Kong 490 534 (8 )
Power generation (1,198 ) 494 (343 )
Others 1,527 3,655 (58 )
Cash contributed from all businesses 8,194 13,201 (38 )
Net debt 38,938 20,609 89
Cash & available committed loan facilities 36,801 26,589 38
Total number of shares outstanding (in million) 3,646 2,212 65
Shareholders’ funds 49,971 59,793 (16 )
Shareholders’ funds per share (HK$) 13.70 27.03 (49 )
Dividends per share (HK$) Regular 0.30 1.20
Special – 0.20
Ratios
Total debt to total capital 64% 36%
Net debt to total capital 44% 26%
Interest cover (13)x 50x
2 CITIC Pacific Annual Report 2008
CITIC Pacific’s Fundamental Strengths
CITIC Pacific has a great depth of experience and expertise in operating businesses in China, both on the mainland and in Hong Kong. In recent years the business has been increasingly focused on the mainland to take advantage of the long-term growth opportunities that exist there.
Our major businesses are special steel manufacturing, iron ore mining and property development in mainland China.
Our Major Businesses
CITIC Pacific Special Steel is the largest special
steel manufacturer in China. Special Steel is
used in a wide range of industries including
auto components, machinery manufacturing,
transportation, energy, railways and shipping. The
major products are bearing steel, gear steel, spring
steel and seamless steel tubes.
Find out more on p6
Special Steel• 25% of segment assets
• 3keyproductionplantsinChina
• over7milliontonnesofannual productioncapacity
Shijiazhuang
Beijing
ShanghaiJiangyin
Huangshi
3CITIC Pacific Annual Report 2008
The Sino Iron project is the most advanced
magnetite development in Australia. Production
is expected to start in the second half of 2010
ensuring a stable, quality supply of iron ore to
CITIC Pacific’s special steel plants, as well as
other steel producers in China.
Find out more on p18
CITIC Pacific focuses on developing medium
and large scale projects in mainland China.
Properties are located in prime areas in
Shanghai, major cities in the Yangtze Delta area,
as well as Hainan Island.
Find out more on p28
Iron Ore Mining Property• 18% of segment assets
• 2billiontonnesofworldclass magnetiteorereserves
• over27million tonnes of concentrateandpelletstobe exportedannually
• potentialtoincreaseproductionto
morethan70million tonnes annually
• 29% of segment assets
• developing4.9million square metresofgrossfloorareainthe comingyears
• adiversifiedportfolioof developmentproperties
Australia
Perth
DampierKarratha
Cape Preston
Sino Iron Project
BeijingTianjin
ShanghaiChongqing
Guangzhou
Hong Kong
Hainan Island
4 CITIC Pacific Annual Report 2008
Chairman’s Letter to Shareholders
2008 Results OverviewCITIC Pacific’s net loss after tax attributable to
shareholders for 2008 was HK$12,662 million
compared with a profit of HK$10,843 million in
2007. A HK$14,632 million realised and marked to
market loss after tax on a number of foreign exchange
contracts was recognised in 2008, which significantly
impacted the bottom line of our company. Excluding
this loss, CITIC Pacific’s businesses made an after tax
profit of HK$1,970 million.
The Board recommends not paying a final dividend.
Thus, the dividend per share for the year is the
HK$0.3 declared and paid as an interim dividend.
It has also been decided that no bonuses will be paid
to directors for 2008.
Financially Sound Our company is financially secure following the
re-capitalisation by the CITIC Group. Shareholders’
funds stood at HK$50 billion at 31 December 2008.
Our balance sheet is solid, with debt maturity well
structured in anticipation of cash flows from our
businesses. Our cash position is good, and the
majority of our projects already have financing in
place. Maturing debt in the next few years requires
re-financing and, considering today’s environment,
work on this will begin shortly.
Core Businesses are Fundamentally StrongI am pleased to report that the difficult times we
have experienced in recent months have not
distracted the management of our businesses from
their unremitting focus on our operations. However,
there can be no doubt that the economic conditions
have impacted the full year performance.
Our special steel business had a mixed year. After an
excellent first half, which saw profits reach a historic
high, both demand and the price of steel weakened,
notably in the fourth quarter. In addition, a year end
provision had to be made against our inventory as its
value had decreased significantly. 2009 will be
another challenging year.
Our focus is to manage our businesses for the
long-term. The improvements we have made in
recent years to raise product quality, develop new
products and new markets, and operate more
efficiently will continue to pay off. We now have a far
more coordinated approach to sales and marketing,
raw material sourcing and technology development
among our three steel plants, and an increased
proportion of higher value products.
We are in a strong position as the largest special steel
maker in China with the highest market share in the
categories of steel we manufacture. The economies
of scale and market position we enjoy will help us
continue to reap benefits.
Our iron ore mine development in Western Australia
made significant progress in 2008. In December,
amendments to the State Agreement Act governing
the project were passed, enabling us to export
magnetite concentrate as well as pellets and thus
allowing the full project plan to be executed. In
January 2009, we signed a seven-year contract for the
supply of gas to our project. With more than 1,100
people working in Perth, Beijing and at the project
site, and over 75 percent of capital expenditure
committed, the project is the most advanced large-
scale magnetite development in Australia. We now
have 90 percent of our mining fleet on site. Other
preparatory works are well advanced with
components being manufactured at different facilities
around the world. The initial production is expected
to begin in 2010.
5CITIC Pacific Annual Report 2008
Despite a global downturn in commodity prices and
a softening of demand for raw materials, we maintain
an optimistic long-term view of the iron ore market.
Our property projects in mainland China continue
to make progress. The twin office towers of our
Shanghai Lu Jia Zui New Financial District Project are
on schedule to be completed in 2010. During 2008,
despite deteriorating market conditions we pre-sold a
number of units in our residential projects in Qingpu,
Yangzhou, and Jiangyin. Ningbo CITIC Square is on
track for completion in the latter half of 2009.
The construction of the infrastructure, two hotels
and apartments of our Hainan project is also
progressing well.
We are closely monitoring property market
conditions, and we retain the flexibility to adjust
the pace of our developments accordingly. However,
we believe strongly that the underlying demand for
quality offices and homes in China will continue to
drive the property market in the long run. Our
financial strength enables us to withstand short-term
volatility and this, combined with our longstanding
experience of property development in China, will be
critical to our continued success.
Other BusinessesOur power business had a tough year. The significant
increase in the price of coal was the main reason for
the loss incurred. 2009 has seen coal prices come
down, which is beneficial to power producers.
However, utilisation hours of power plants will
depend on China’s overall economic development.
We expect our power business to do better in 2009.
Cathay Pacific’s performance was affected by an
unrealised mark to market loss on fuel hedging
contracts as well as a general slowdown in demand in
the second half of the year. 2009 will remain difficult
for the aviation industry. In the long-term, Cathay
Pacific will continue to benefit from the synergies
with Dragonair and a strong relationship with Air
China. The Eastern and Western Tunnels in Hong
Kong operated smoothly with increased profit and
continuing cash flow. Our two listed companies
CITIC 1616 and Dah Chong Hong, both performed
well with increasing profits in a challenging year.
These businesses provide steady cash flow to our
company.
Looking to the FutureNow that we have put the issues of 2008 behind us, we
are focused on the future. For 2009, we face a difficult
operating environment which will impact this year’s
performance. We will operate our business as
efficiently as we can to help weather this downturn.
As we look at global economic conditions and
compare the situation in mainland China, we remain
encouraged. We have sufficient resources and are well
placed to capture future opportunities.
I would like to take this opportunity to extend both
my own personal thanks and that of the Board to
all of our employees. This has been an extremely
challenging period for our company, and our
employees have shown outstanding dedication
and commitment.
Larry Yung Chi Kin
Chairman
Hong Kong, 25 March 2009
6 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Special Steel
7CITIC Pacific Annual Report 2008 7CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Special Steel• 6.3 million tonnes of special steel produced in 2008
• High end products were 40% of total production in 2008
• A special steel plate line and two seamless steel tube lines are on track for completion in 2009
• New coking coal plant is on track to begin production in the second half of 2009
• Emission and energy savings achieved
8 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Special Steel
79%
Jiangyin Xingcheng Special Steel
3m tonnes capacity
EastEast Jiangyin Jiangsu ProvinceJiangyin Jiangsu Province
NorthNorth ShijiazhuangHebei ProvinceShijiazhuangHebei Province
CentralCentralHuangshiHubei Province
HuangshiHubei Province
ShijiazhuangSteel Mill
2.2m tonnes capacity
Xin Yegang SteelDaye Special Steel*
2m tonnes capacity
100%
65% ggBeijingBeijing
aiaiShanghaiShanghai
Segment assets
25%
Special steel
HK$ million 2008 2007 Change
Turnover 22,758 18,501 23%
Profit contribution 1,617 2,242 (28)%
Segment assets 28,848 21,489 34%
Segment liabilities 5,751 5,381 7%
Cash contribution to CITIC Pacific 194 2,196 (91)%
Capital expenditure 8,381 1,442 481%
9CITIC Pacific Annual Report 2008
79%
Jiangyin Xingcheng Special Steel
3m tonnes capacity
EastEast Jiangyin Jiangsu ProvinceJiangyin Jiangsu Province
NorthNorth ShijiazhuangHebei ProvinceShijiazhuangHebei Province
CentralCentralHuangshiHubei Province
HuangshiHubei Province
ShijiazhuangSteel Mill
2.2m tonnes capacity
Xin Yegang SteelDaye Special Steel*
2m tonnes capacity
100%
65% ggBeijingBeijing
aiaiShanghaiShanghai
CITIC Pacific Special Steel
* CITIC Pacific owns 58% of Daye Special Steel
Overview CITIC Pacific Special Steel is the largest special steel
manufacturer in China with an annual production
capacity of over seven million tonnes. Our three operating
plants, Jiangyin Xingcheng Special Steel, Xin Yegang
Steel and Shijiazhuang Steel, are ideally located to cover
the main markets for special steel in eastern, central and
northern China. The major products manufactured are
bearing steel, gear steel, spring steel and seamless steel
tubes. These are widely used in a range of different
industries, including auto components, machinery
manufacturing, oil, petrochemicals, transportation,
energy, railways and shipping.
2008 Operating Performance In 2008, a total of 6.3 million tonnes of special steel was
produced by CITIC Pacific Special Steel’s three plants.
Sales closely matched the amount produced.
Production and sales were 4% and 3% lower compared
with 2007. Demand for special steel products was strong
in the first half of the year. However, the global financial
crisis led to a slowdown in growth, and demand for steel
products declined sharply. This in turn led to a drop
in steel prices in the second half of 2008, which was
particularly pronounced in the fourth quarter.
10 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Special Steel
Special steel manufacturing process
* Xin Yegang does not use a converter
Scrap Steel
Coke
Iron Ore
BlastFurnace
Converter*
Alloy Products
LF Ladle Refining Furnace
Continuous Casting Machine
Vacuum / RH Degassing Furnace
Electric ArcFurnace
ContinuousRolling Mill
04
207
0805 06 07
1H
HK$ million
2H
Profit contribution
231
388
420
794
539
(222)
1,839
1,119
1,123
The profit contribution from CITIC Pacific Special Steel
declined 28% compared with 2007, primarily due to the
challenging operating environment in the latter part of
2008. During this period, all three plants experienced
a sharp decline in product price, but were using raw
materials purchased earlier in the year at high cost.
Another major factor accounting for the decrease in
profit contribution was a provision of HK$513 million
against year-end inventory.
Special Steel ProductionOur three special steel plants employ two different
technological approaches: long and short processes.
The long process uses iron ore and coke as raw
materials. The short process uses scrap steel, pig iron or
molten iron as raw materials. During the next phase,
alloys are added to the molten steel produced from these
processes. Through an ‘LF’ ladle refining furnace, an
‘RH’ or vacuum degassing furnace, and a continuous
casting and rolling process, steel billets are produced
and shaped to various specifications according to
customers’ specific requirements. The management
teams at the plants are focused on cost efficiency and
product quality, and will therefore choose whichever one
of the processes that has lower raw material input costs.
400
350
450
500
550
600
650
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2008 monthly production and sales volume
’000 tonne
SalesProduction
300
400
500
600
700
800
11CITIC Pacific Annual Report 2008
ProductsSpecial steel refers to steel that has added or extra
benefits, such as heat resistance, anti corrosion and anti
fatigue. Categorised by shape, special steel includes bar
steel, plate, strip steel, tube steel and wire steel.
Approximately 90% of CITIC Pacific Special Steel’s
products are bar steel, manufactured to order based on
customers’ specific requirements. These bars are sold to
manufacturers who use this steel to make products such
as gears, bearings and springs. Around 6%, or 400,000
tonnes of total annual production, was for seamless
steel tubes which are used in the oil and petrochemical
industry as well as for machinery manufacturing.
Key products of CITIC Pacific Special Steel
2008 market Sales (’000 tonnes)Product share 2008 2007 Change
Gear steel 44% 863 831 4%
Alloy spring steel 40% 447 463 (3)%
Bearing steel 40% 769 789 (3)%
Other alloy steel 26% 1,741 1,835 (5)%
Carbon structure steel 19% 1,265 1,471 (14)%
Seamless steel tubes 7% 380 436 (13)%
Statistics are from the China Special Steel Enterprises Association and include only registered enterprises
In 2008 high end products were 40% of the total
production, about 2.5 million tonnes and an 8%
increase from 2007.
Customers
The Group’s products are sold to these industries
Percentage Percentage 2008 sales of changeIndustry (’000 tonnes) total sales from 2007
Auto components 2,662 42% 2%
Machinery manufacturing 1,397 22% 6%
Metal works 828 13% (23)%
Power generation 415 7% 8%
Oil and petrochemical 381 6% 9%
Railway 156 2% 12%
Shipbuilding 100 2% 7%
Others 390 6% (31)%
Total 6,329 100% (3)%
12 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Special Steel
Top five customers in China
Tonnage Name Industry sold (’000)
Jiangsu Zhenda Machinery manufacturing 132 Seamless Tube
Pangang Group Chengdu Machinery manufacturing 80 Iron and Steel
Yangzhou Chengde Power generation 79 Steel Tube
Dongfeng Motor Auto components 78
Jiangxi Hongdu Machinery manufacturing 77 Steelworks
Many buyers of our products are affiliated and contracted
producers for manufacturers in the auto, machinery
manufacturing, oil and petrochemical industries. Our
end users include Toyota, General Motors, Honda,
Volkswagen, Volvo, Caterpillar and SKF.
Sales and Marketing of ProductsOne of the key advantages of the special steel business
is that production is based on customer orders and
therefore inventory levels of finished products are
usually low. For 2008, over 70% of sales were to long-term
customers with whom we have strategic relationships.
The product delivery period is typically in the one to
three month range, with the majority being less than
two months.
We retain the flexibility to adjust product prices
according to market changes.
In 2008, 84% of products were sold to domestic
Chinese customers. Exports made up the other 16%
of sales amounting to 990,000 tonnes, a decrease of
11% compared with 2007.
1,000
500
1,500
2,000
2,500
3,000
3,500
4,000
RMB/tonne
Iron ore Scrap steel Coke
500
1000
1500
2000
2500
3000
3500
4000Price of major raw materials
2007 2008Mar Jun Sep Dec Mar Jun Sep Dec
The Group’s products are exported to these countries and regions
Amount Percentage of ChangeCountry / Region (’000 tonnes) total exports from 2007
Korea 217 22% (34)%
Southeast Asia 227 23% 21%
Europe 158 16% (20)%
South America 109 11% 61%
United States 71 7% 15%
Middle East 60 6% (32)%
Others 145 15% (15)%
Total 987 100% (11)%
Raw Materials RequiredMajor raw materials used in the production of special
steel include iron ore, scrap steel, coke, coal and alloy.
Major raw materials used
Percentage Percentage of total of 2008 raw material productionType (’000 tonnes) cost cost
Iron ore 8,878 34% 30%
Scrap steel 1,793 19% 17%
Coke 1,692 12% 10%
Coal 3,544 13% 11%
Alloy 238 14% 13%
Total 16,145 92% 81%
13CITIC Pacific Annual Report 2008
Source of iron ore
Country Percentage of total
China 42%
Australia 26%
Brazil 14%
India 10%
Others 8%
The prices of all major raw materials increased
significantly in the first seven months of 2008. However,
from August onwards the prices of these raw materials
declined rapidly due to weakened demand.
Of the total 8.9 million tonnes of iron ore used in 2008,
approximately 33% was contracted compared with 25%
in 2007. The rest was purchased on the spot market.
Major overseas suppliers are Vale, Hamersley and BHP.
Fortescue also became a supplier in 2008.
For 2009, we see the trend of price differences between
contracted and spot iron ore narrowing, which means
that our cost base will be moving closer to other major
steel producers in China, who are able to secure much
more contracted iron ore than CITIC Pacific Special
Steel. When our Australian iron ore mine begins full
production, this issue will be partially resolved.
4,000
3,000
5,000
6,000
7,000
8,000
9,000
Price of major products
RMB/tonne
Gear steel Bearing steelAlloy spring steelCarbon structure steel Seamless steel tubes
Other alloy steel
3000
4000
5000
6000
7000
8000
2007 2008Mar Jun Sep Dec Mar Jun Sep Dec
With the goal of lowering the overall cost of the delivered
iron ore, we ordered a total of 12 bulk carriers with
115,000 deadweight tonnage (DWT) each. The first of
these will be delivered in 2010. These ships are specially
made to travel up the Yangtze River to arrive directly at
Jiangyin Xingcheng Special Steel, which is expanding its
port capacity to accommodate these vessels.
Another important raw material is coking coal. We now
have two coking coal plants with a production capacity
of 1.9 million tonnes. We invested in a new coking plant
in 2008, which will begin production in the second half
of 2009. It is capable of producing 900,000 tonnes of
coking coal annually. With our three coking facilities,
we can meet the needs of our plants.
Product PricingPricing of special steel products is mainly driven by
two factors: demand and the cost of raw materials. In
the first three quarters of 2008, the price of special steel
products in all three of our plants rose significantly due
to strong demand as well as sharp increases in the cost of
the raw materials used. However, from the fourth quarter
onwards, weakened demand and raw material price
decreases led to a significant drop in special steel prices.
14 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Special Steel
Protecting the EnvironmentOver the years, much effort and work have gone into
lessening the impact of our plants on the environment,
mainly through reducing emissions and saving energy.
The major initiatives undertaken were:
• Implementation of ISO14001 Environment and
Management System
• Passed China’s Occupational Health and Safety
Assessment
• Improved use of resources, such as gas recovery,
waste heat and pressure utilisation, waste water
treatment and recycling
• Further investment in energy saving and emission
reducing equipment
Major pollutants Measures Results
Industrial fumes, and dust Cloth filter de-dusting and electric de-dusting
Sewage water Cooling water recycling; small quantity treated in sewage treating station before discharging All national
Waste residual Recovered and recycled environment protection
Noise Sound proof coverage used for all large noise requirements met generating equipments; factory not close to residential areas
SO2 Treated with wet desulphurizing device
15CITIC Pacific Annual Report 2008
Outlook for 2009 and BeyondIn 2008, total special steel production in China was 10%
of total steel produced and decreased 0.4% compared
with 2007. In industrialised countries, special steel is
roughly 15–20% of the total steel production. In the
long-term, as China continues to grow, more and more
special steel will be needed.
Looking at the prospects for 2009, China’s steel industry
faces the dual challenge of weakened steel demand both
domestically and also from international markets. The
RMB4 trillion stimulus package unveiled by the Chinese
government in November 2008, which aims to bolster the
economy, should benefit the steel industry. However, a
structural imbalance between demand and supply exists,
and this is likely to be more pronounced in the first half
of 2009 with the situation improving in the second half.
Similarly, in special steel over-supply at the lower-end
of the product spectrum is already evident. However,
a number of the higher-end products still rely on
imports. Overall product prices are likely to remain
low in 2009, particularly in the first half of the year with
some recovery expected in the second half. The auto,
machinery, railway and energy sectors will continue to
play an important role in driving demand for special
steel in the long-term.
Plans for the FutureAs the largest special steel producer in China, CITIC
Pacific benefits from economies of scale combined with
our leadership position in the types of steel produced.
This puts us in an extremely advantageous position to
capture long-term growth opportunities in the China
market. Work will continue in many areas:
Product Development, Marketing and Sales
We will closely monitor China’s stimulus plan to seek new
opportunities in markets for high quality bar products,
seamless steel tubes and those used in the railway,
wind power, marine engineering and machinery
manufacturing industries.
Raising product quality is critical to staying competitive,
in particular in a market where there is over supply of
lower-end products. In 2008, 40% of CITIC Pacific’s
products were high quality compared with 36% in 2007.
Currently, a small portion of our products are sold
through traders while the majority is sold directly to
users. Going forward, we will aim to continue reducing
the reliance on traders and directly reach end-users.
Strategic co-operative relationships have been established
with First Auto, Dongfeng Motor, Caterpillar and SKF.
Synergies Among Plants
Since the formation of CITIC Pacific Special Steel, strong
synergies have been achieved from the three plants, and
work will continue on this front. Major raw materials
required by the three plants will be sourced centrally to
further reduce costs. Centralised negotiations with
major ports such as Beilun port in Ningbo on raw
material loading and unloading could further reduce
transshipment costs. Management will also further
rationalise the regional sales division in order to lower
transportation costs and shorten the time needed to
deliver products to customers.
16 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Special Steel
Expansion Plans
With the aim of further enhancing our leading position
in the domestic and international markets for special
steel, we are expanding our product range to include
plates as well as downstream finished products such as
seamless steel tubes.
A new special steel plate production line with an annual
capacity of 1.2 million tonnes is being constructed at
Jiangyin Xingcheng Special Steel, and is expected to be
completed in the second half of 2009. Main products
will include ship plate steel, steel used in marine
engineering, petroleum pipe line steel, and pressure
vessel steel used in the shipbuilding, marine
engineering, oil, petrochemical and machinery
manufacturing industries.
The market for medium plates has been growing rapidly
in China in recent years. There is strong demand for
high quality, high value added plates. This market
currently relies on imports, in particular pipe line steel,
ship plate and steel used in marine engineering and
machinery manufacturing. Therefore, the products
from this new line will be able to meet the demand for
similar products in China in the future.
In Xin Yegang, two new lines with total annual
production capacity of 630,000 tonnes of medium wall
seamless steel tubes are being constructed. Completion
is expected in the third quarter of 2009. Products from
the two lines are widely used in the energy,
petrochemical, coal and military industries.
Jiangyin Xingcheng’s products
Wire
Bearing steel Gear steel
Carbon structure steel
8%
7%
8%
Alloy spring steel Other alloy steelOthers
11%
17%
29%
20%
Jiangyin Xingcheng Special Steelwww.jyxc.com
Located in Jiangsu Province in the eastern part of China,
Jiangyin Xingcheng Special Steel is a leader in special
steel manufacturing in China. Its annual production
capacity of three million tonnes includes
a production line built in partnership with Sumitomo
Metals Kokura of Japan. Completed in 2007, it is now
producing special steel for high-end auto components.
It is also the first and only line in China capable of
producing round tube billet with a diameter of 800mm
for use in machinery manufacturing. The plant’s other
high-grade products are used in the making of bearings,
gears, springs and high-pressurised tubes.
A new production line is being constructed to produce
special steel plate products. With an annual capacity of
1.2 million tonnes, its completion is expected to be in
the second half of 2009.
Jiangyin Xingcheng Special Steel is strategically situated
next to the Yangtze River and has two 50,000 tonne
wharfs, providing efficient transport of its raw materials
and finished products. The wharfs are being expanded
to accommodate the 115,000DWT ships ordered by
CITIC Pacific.
For 2008, a total of 2.9 million tonnes of steel was
produced and 2.8 million tonnes were sold, an increase
of 6% and 5% respectively, primarily due to the addition
17CITIC Pacific Annual Report 2008
Xin Yegang Steel’s products
Seamless steel tubes
Bearing steel Gear steelOther alloy steelAlloy spring steel
Carbon structure steel Others
20%
19%
11%
23%
1%
17%
9%
Shigang’s products
Bearing steel Gear steelAlloy spring steel
39%
15%25%
Other alloy steelOthersCarbon structure steel
11%
7%
3%
of the Sumitomo line. Exports were 460,000 tonnes, a
6% drop from the previous year. Many of the products
are certified by well known users worldwide, such as
Toyota, SKF, FAG and Caterpillar.
Xin Yegang Steel (Xin Yegang)www.xinyegang.com
Xin Yegang had an annual designed production
capacity of two million tonnes at the end of 2008,
including the capacity of Daye Special Steel, an A-share
listed company in which CITIC Pacific indirectly holds a
58% interest. Xin Yegang’s products include bearing
steel, gear steel, spring steel, carbon structure steel and
seamless steel tubes that are used in the auto,
petrochemical, power and machinery manufacturing
sectors.
Two new lines with a total annual production capacity
of 630,000 tonnes are being constructed, and
completion is expected to be in the third quarter of
2009. Their products are primarily used in the energy,
petrochemical, coal and military industries. These two
products will compliment Xin Yegang’s existing
seamless tubes to further satisfy customer needs.
Xin Yegang is located in the city of Huangshi in Hubei
Province and is the oldest steel plant in China, dating
back to 1908. It is next to the Yangtze River, with three
5,000 tonne wharfs that enable it to enjoy an advantage
in transportation. In the future, the Group’s mini-cape
sized ships will transport the iron ore from various
sources to ports on the Yangtze River, where it will be
transshipped to Xin Yegang. As a result, transshipment
costs should be reduced.
In 2008, Xin Yegang’s production and sales were 1.7
million tonnes, a reduction of 8% compared with 2007.
Exports were 253,000 tonnes, which was 15% of total
sales and 9% lower from the previous year.
Shijiazhuang Steel Mill (Shigang)www.csggs.com
Located in the city of Shijiazhuang in Hebei Province,
Shigang benefits not only from the efficient
transportation networks around Beijing and Tianjin,
but also from neighbouring coal-rich Shanxi Province.
Established in 1957, Shigang is now a manufacturer
of special steel with a production capacity of over two
million tonnes.
Its main products include bearing steel, gear steel and
alloy steel, and are supplied mainly to the auto
components and machinery manufacturing sectors.
For 2008, 1.7 million tonnes of steel were produced
and 1.8 million tonnes were sold. Exports were down
19% compared with last year, amounting to 15% of
total sales.
BUSINESS REVIEW
Iron Ore Mining
18 CITIC Pacific Annual Report 2008
19CITIC Pacific Annual Report 2008
BUSINESS REVIEW
• Amendments to the State Agreement Act passed enabling the export of concentrate in addition to pellets
• Indigenous Land Use Agreements signed with three Native Title claimant groups
• Major gas supply arrangement secured
• Over 18 million tonnes of material moved
• More than 75% of capital expenditure committed
Iron Ore Mining
19CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Iron Ore Mining
20 CITIC Pacific Annual Report 2008
HK$ million 2008 2007 Change
Segment assets 20,976 9,780 114%
Segment liabilities 6,074 702 765%
Capital expenditure Mining 8,479 4,808 76% Ships 1,531 2,036 (25)%
Segment assets
18%
Iron ore
21CITIC Pacific Annual Report 2008
OverviewCITIC Pacific’s Sino Iron project is geographically well
placed to take advantage of the neighbouring Asian
market, with a large mineral resource base and
processing close to port facilities in the Pilbara region
of Western Australia.
CITIC Pacific has rights to two billion tonnes of
resource, giving the project an expected mine life of
about 25 years, with options to acquire an additional
four billion tonnes which would lift production to
70 million tonnes per annum.
With long lead items ordered, manufacturing in
progress and major construction underway at site, the
project is the most advanced magnetite development in
Australia and represents a secure, long-term source of
quality feedstock for major steel mills in China,
including those owned by CITIC Pacific.
The Sino Iron project is managed by CITIC Pacific
Mining, a subsidiary of CITIC Pacific, and is
headquartered in Perth with a representative office in
Beijing. The project will mine magnetite iron ore and is
scheduled to begin production during the second half of
2010. Ore will be processed into concentrate and pellets,
and at full production more than 27 million tonnes of
product will be exported each year.
BUSINESS REVIEW
Iron Ore Mining
22 CITIC Pacific Annual Report 2008
Once in operation, the Sino Iron project will mine more
than 140 million tonnes of material each year, of which
about 80 million tonnes will be processed, making it one
of the world’s largest mines. Dedicated infrastructure
includes concentrate processing, pelletising, a 51
gigalitre desalination plant and new port facility, as well
as a 450 MW power station.
The project will benefit from China’s position as the
world leader in magnetite ore processing technology
with the lead contract for the detailed design, construction
and commissioning of the mine, processing facilities
and materials handling being implemented by China
Metallurgical Construction Corporation, which will
acquire a 20 percent equity interest in the project.
An important aspect of the project is the transfer to
Australia of Chinese magnetite mining and processing
technology and expertise which, combined with the
experience of CITIC Pacific Mining’s Australian team
and partners, will create the foundation of an Australian
magnetite industry on a world scale.
Sino Iron project – Magnetite mining and processing for export
Mining Crushing and grinding
Concentration Filtration Pellet plant Stockpile and shipping
Australia
PORT
PerthSydney
Melbourne
CAPE PRESTON
FORTESCUERIVERMOUTH
KARRATHA 85KMS
FORTESCUE RIVER ROAD
DAMPIER TO BUNBURY
GAS PIPELINE
PRESTON ISLAND
PELLET PLANT
MINE SITE
POWER PLANT
PROCESSING GAS PIPELINE AND MINE
ACCESS ROAD
DESALINATION PLANT
CAUSEWAYCAUSEWAYCAUSEWAY
SERVICECORRIDORSERVICECORRIDOR
DAMPIER TO BUNBURY
GAS PIPELINE
NORTH WEST COASTAL HIGHWAY
NORTH WEST COASTAL HIGHWAY
FORTESCUE ROAD HOUSE 10KMS
FORTESCUE ROAD HOUSE 10KMS
MARDIE STATION
23CITIC Pacific Annual Report 2008
ProductsThe products anticipated from the Sino Iron project will
be of very high quality specification (high in iron content,
low in contaminants). This is a crucial requirement for
special steel producers in particular, who have very tight
tolerance limits given the nature of their finished
products. Therefore, these products are expected to
benefit from broad market acceptance from
conventional steel producers as well as special steel plants.
Mineral Resource Estimate
Total Joffre resource
Classification Million tonnes MagFe (%)
Measured 193 22.38%
Indicated 1,209 22.74%
Inferred 911 24.15%
Total 2,314 23.26%
Note: ‘Mineral Resource’ estimates are based on assay data at December 2007. Model released February 2008.
A ‘Mineral Resource’ is a concentration or occurrence of material of economic interest in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. ‘Joffre’ is a member of the Brockman Iron Formation, the main ore body for the project.
2008 Project ProgressThe Sino Iron project has achieved significant outcomes
during 2008.
Approvals
Government approval to commence construction was
given in May 2008 based on an initial, limited project
proposal. Amendments to the State Agreement Act
under which the project operates were passed by the
Western Australian Parliament in December to allow
the export of concentrate in addition to pellets.
Indigenous Land Use Agreements were signed with
three Native Title claimant groups covering the Cape
Preston area. The agreement provides native title and
land tenure certainty for the project and benefits
including education, training and employment
opportunities for the groups.
Gas Supply
A significant milestone was reached with the completion
of a major gas supply agreement. This agreement will see
the Sino Iron project become the foundation customer
for a new natural gas supply in Western Australia.
Under the contract, gas will be supplied by Apache and
Santos over seven years commencing in the second half
of 2011 from the offshore Reindeer gas field.
Construction
Bulk earthworks for the concentrator and power plant
were completed and civil works commenced.
Construction of a causeway providing temporary access
to the location of the port facility is underway. Initial
earthworks for the 25 kilometre service corridor
between mine and port at Cape Preston have begun.
Installation of construction accommodation villages is
continuing with 900 new rooms becoming available in
April 2009, increasing to more than 3,000 rooms to
match forecast workforce levels.
BUSINESS REVIEW
Iron Ore Mining
24 CITIC Pacific Annual Report 2008
Contracts have been awarded for the detailed design and
construction of a jetty structure and the transshipment
facilities. A contract for the detailed design and supply
of the desalination plant process, mechanical and
electrical equipment has also been awarded. A major
logistics contract was awarded to Sinotrans which will
work in partnership with Toll Australia to globally
manage transport and logistics requirements for
the project.
Mine Development
A bulk sample of iron ore was extracted from the mine
pit in August 2008 and testing has been conducted
successfully to refine and optimize the process plant
design. Results to date confirm the ore is suitable for the
autogenous grinding phase of processing, and further
testing will continue during first half 2009 to assess
performance in other processing phases.
More than 90 per cent of the mining fleet is on site. The
early arrival of the equipment, amongst the largest in
its class, will add to the business’s efficiency as the
equipment will play a critical role in project construction.
More than 18 million tonnes of material was moved
during 2008 in preparation for the commencement
of mine operations.
People
At year end 2008, CITIC Pacific Mining had more than
530 employees in Western Australia and China and
more than 500 contractors on site. In a highly
competitive labour market, the recruitment effort saw,
on average, one person joining the business each day
during 2008. The business was also certified as
a registered training organisation in April.
25CITIC Pacific Annual Report 2008
Safety
The construction phase of a project raises challenges for
safety with a rapid increase in personnel numbers at site.
During 2008, work progressed on a number of safety
initiatives across the business, in particular
communications, contractor management, vehicle
safety and a review of health and safety standards, to
ensure objectives, activities and behaviours are aligned
to prevent the risk of injury. Cyclone readiness was also
a key focus during the year.
Environment and Heritage
CITIC Pacific Mining’s heritage team successfully
managed obligations under Australian Native Title and
cultural heritage legislation to allow ground disturbance
over the project area. The team undertook extensive
archaeological and ethnographic surveys in consultation
with three Native Title claimant groups to ensure careful
management of heritage areas and prepare relevant
approvals, allowing construction to proceed in
a timely way.
A team of environmental professionals oversees
compliance in all environmental aspects of the project,
including regular site audits and establishment of
monitoring programs. Comprehensive environmental
management plans have been developed in consultation
with government to ensure appropriate management
of sensitive issues and areas.
CITIC Pacific Mining recently completed the transfer
of approximately 2,500 hectares of land to Western
Australia’s Conservation Estate, which will assist the
protection of terrestrial ecosystems.
Greenhouse Gas Emissions
With energy as a key input, the planning and design
phases of the project have incorporated strategies to
reduce greenhouse gas emissions, including the
construction of an efficient, low emission combined-cycle
power station, which produces about 40 per cent less
emissions than an open cycle plant. With a significant
energy footprint, there are implications for the project
from the planned introduction of a carbon pollution
reduction scheme (CPRS) in Australia.
During 2008, a life cycle assessment of magnetite was
commissioned which demonstrated significant net
greenhouse gas savings over the value chain. Magnetite
product is of higher iron content with lower impurities
and generates heat in the steel making process, thereby
resulting in an overall reduction in carbon emission
when compared to traditional hematite fines.
Under the proposed CPRS, increased emission activities
in Australia will be penalised despite net emissions in
the global steelmaking value chain being reduced. CITIC
Pacific Mining is currently seeking government support
for magnetite mining and processing to be compensated
as an emissions intensive, trade exposed industry to
ensure that the project is not unduly impacted on its
ability to operate in a competitive, cost effective and
carbon conscious way.
BUSINESS REVIEW
Iron Ore Mining
26 CITIC Pacific Annual Report 2008
Community
CITIC Pacific Mining has established relationships with
government, industry and community stakeholders in
Western Australia, with a focus on Pilbara regional
stakeholders. Engagement with the local community is
essential to the success of this project and consultation
with stakeholders has allowed development of
a community engagement framework and identified
a number of initial opportunities for community
partnerships.
Project Commencement
Following a review of the overall project schedule with
key project partners, the first production target has been
revised to the second half of 2010.
Construction of the six mill lines and the pellet plant will
be phased to reduce peak manning levels and manage
associated costs.
The capital expenditure for the project is approximately
US$3.85 billion, consisting of US$3.5 billion in capital
cost and US$0.35 billion in pre-investment. More than
75% of capital expanditure is committed. In an
assessment of operating needs, CITIC Pacific Mining
identified opportunities to build in economies of scale
when constructing key pieces of infrastructure. This
pre-investment will add value to the project and will
help increase capacity for future stages.
Looking AheadDespite a global downturn in commodity prices and
a softening of demand for raw materials, CITIC Pacific
maintains an optimistic view of the iron ore market.
While it is expected that iron ore demand will be subject
to considerable volatility in the immediate short-term,
there are potential benefits flowing from China’s
US$586 billion economic stimulus package, which is
largely directed at infrastructure.
Such initiatives will take time to offset the negative
impact of the recent rapid downturn in exports and
construction. However, in the longer term there is
evidence that the current global credit issues could
ultimately lead to supply shortages, potentially allowing
demand to increase due to industry consolidation and
associated supply contraction and constraints; limited
capital availability for new projects; cost structures
remaining high compared to long term historical
norms; and sustained, albeit slower, growth in China.
A business strategy has been developed to drive an
improvement culture at CITIC Pacific Mining with the
aim of continually enhancing the productivity of
resources to increase the value of the business for
shareholders and products for customers. The strategy
seeks to maximise new technology and research to
improve the efficiency of the business.
Firstproduction
All approvals finalised
Firstexport
Pellet plant construction
Mine development project timeline
27CITIC Pacific Annual Report 2008
In 2009, CITIC Pacific Mining will maintain engagement
with the local community as the level of project activity
increases and a large construction workforce continues
to arrive at site.
Project Activity in 2009With the amendments to the State Agreement Act now
passed, CITIC Pacific Mining has submitted a full
project development proposal to enable progress on
construction as planned, and will work closely with
government to finalise environmental management
plans under the environmental approval given to the
project in 2003, as well as Aboriginal Heritage Act
approvals. With continued strong support from
government to progress approvals for major projects,
CITIC Pacific Mining remains confident that approvals
will not impede the construction progress.
Key project components are being manufactured and
will be delivered from around the world, beginning in
the first half of 2009. With these arrivals, activity across
the site will dramatically increase during the year.
A construction workforce of more than 4,000 is expected
during peak construction periods. The awarding of
outstanding major construction contracts will be
completed during the first half 2009 and civil works will
commence on the crushing facilities and concentrator.
A temporary causeway to the location of the port facility
at the cape area will enable major earthworks to begin,
following which civil works will commence on the
desalination plant and other facilities. The construction
of a permanent causeway and port facility will
commence, enabling modular pieces of equipment to
be delivered direct to site later in the year.
28 CITIC Pacific Annual Report 2008
29CITIC Pacific Annual Report 2008
BUSINESS REVIEW
• Twin office towers of Shanghai’s Lu Jia Zui New Financial District Project on schedule for completion in 2010
• CITIC Square in Ningbo is on track for completion in the latter half of 2009
• Construction of the infrastructure, two hotels and apartments at our Hainan project is progressing well
• Pre-sold units in residential projects in Qingpu, Yangzhou, and Jiangyin
Property
29CITIC Pacific Annual Report 2008
30 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Property
Haikou
Boao
Wanning
Sanya
HainanIsland
Yangzhou
Nanjing
Shanghai
YangtzeRiverDelta
Jiangsu
Anhui
Zhejiang
Wuxi
Suzhou
Ningbo
ShaoxingHangzhou
Jiangyin
China
BeijingBeijingTianjinTianjin
ChongqingChongqing
GuangzhouGuangzhou
HainanHainan
ShanghaiShanghai
Hong KongHong Kong
Cities in which CITIC Pacific has land banks
Segment assets
29%
33%
67%
Hong Kong
MainlandChina
Property
HK$ million 2008 2007 Change
Turnover 787 1,321 (40)%
Profit contribution Mainland China 523 197 165%
Hong Kong and others 490 534 (8)%
Segment assets 33,632 28,078 20%
Segment liabilities 2,002 1,507 33%
Cash contribution to CITIC Pacific 2,017 2,201 (8)%
Capital expenditure 5,058 4,525 12%
Mainland China
Property profit contribution
48%
52%
Hong Kong
MainlandChina
31CITIC Pacific Annual Report 2008
Haikou
Boao
Wanning
Sanya
HainanIsland
Yangzhou
Nanjing
Shanghai
YangtzeRiverDelta
Jiangsu
Anhui
Zhejiang
Wuxi
Suzhou
Ningbo
ShaoxingHangzhou
Jiangyin
China
BeijingBeijingTianjinTianjin
ChongqingChongqing
GuangzhouGuangzhou
HainanHainan
ShanghaiShanghai
Hong KongHong Kong
CITIC Pacific’s Properties
91%
By gross floor area (GFA)
Mainland China vs HK property
9%
MainlandChina
Hong Kong
32 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Property
Mainland China
97%19%
6%
3%
66%
8%
1%
21%
46%
33%
Residential Office Hotel/Resort facilities OthersRetail
Total gross floor area: 5 million square metres
Development Investment
By gross floor area (GFA)
Development Properties Approx. site area Approx. GFA ExpectedProject Usage Ownership (sq. metre) (sq. metre) completion date
New Westgate Garden, Shanghai Residential, retail 100% Phase I 32,900 9,000 (on sale) Completed Phase II 35,300 137,000 2014
Qingpu Residential Residential, 100% 796,800 606,000 In phases from Development, Shanghai hotel, retail 2009 onwards
Lu Jia Zui New Financial Office, hotel, 50% 249,400 847,000 2010 to 2015 District Project, Shanghai residential, retail
Site at Sichuan Beilu Station of Metro Line No. 10, Office, retail 90% 13,300 53,000 2010 to 2011 Hongkou, Shanghai
No.10, Hainan Rd., Hongkou, Shanghai Office, retail 100% 16,400 66,000 After 2011
Site at Jiading New City Station of Metro Line No. 11, Office, hotel, 100% 156,000 538,000 In phases from Jiading, Shanghai residential, retail 2012 onwards
Jiang Dong District, Ningbo, Zhejiang Province Office, retail 99.3% 39,500 98,000 2009
Noble Manor Residential, retail 100% 328,600 437,000 In phases from Yangzhou, Jiangsu Province 2009 onwards
Jiangyin, Jiangsu Province Residential, retail 56% 91,300 178,000 2010 to 2011
Binhu District Residential, retail 70% 2,110,300 249,000 In phases from Wuxi, Jiangsu Pronvince 2010 onwards
Shenzhou Peninsula Hotel, retail, 80% – 6,710,100 1,653,000 In phases from Wanning, Hainan Province residential 99.9% 2010 onwards
Total 10,579,900 4,871,000
GFA = gross floor area i.e. the total area of permitted construction above ground
• Mainland property is a key focus and a core business
• Developing 4.9 million square metres of gross floor area in the coming years
• Strategic focus on Shanghai, major cities in the Yangtze Delta area, as well as the Shenzhou Peninsula on Hainan Island
• Strengthening sales and marketing efforts of existing developments; looking to grow the land bank at strategic locations in a prudent manner
33CITIC Pacific Annual Report 2008
Shanghai
This site is the last significant prime development area
on the banks of the Huangpu River in Central Shanghai
and was previously used as the shipyard for Shanghai
Shipyard Co. Ltd on the South shore of the Huangpu
River. Jointly developed by CITIC Pacific and the China
State Shipbuilding Corporation, this project will
include Grade-A office buildings, retail space,
apartments and a hotel. The entire project will benefit
from both the riverside scenery and convenient
transport links and is being developed in phases under
a comprehensive master plan. These buildings will
become a prominent landmark in the Lu Jia Zui
Financial District along the Huangpu river banks.
Phase I comprises two Grade-A office buildings and a
five star hotel which will be managed by an internationally
renowned hotel operator. As the financial centre of
China, Shanghai and particularly the Lu Jia Zui Financial
District in Pudong, are attracting an increasing number
of financial institutions to set up their regional
headquarters. Some businesses have already expressed
an interest in purchasing the office premises.
Lu Jia Zui New Financial District Project50% owned
Site area: 249,400 square metresGross floor area: 847,000 square metres Phase I – 263,000 square metres Other phases – 584,000 square metresUsage: Office, retail, hotel and residentialExpected completion: 2010 – 2015 Phase I twin office towers to be completed in 2010Current Status: Phase I construction in progress
Located in the Western part of Shanghai at the junction
of Zhejiang Province, Jiangsu Province and Shanghai,
the Qingpu District is the gateway to and focus of
development in the Western part of the city.
This project will take full advantage of the cultural
traditions and history of the area and is adjacent to two
scenic lakes, Dadian and Dianshan. It will create a
unique living environment and become part of the core
district of Zhujiajiao. The design encompasses villas,
Zhujiajiao New Town – Qingpu Residential Project 100% owned
Site area: 796,800 square metresGross floor area: 616,000 square metresUsage: Low density residential, retail and hotel Expected completion: In phases from 2009 onwardsCurrent Status: approx. 10,000 square metres GFA completed approx. 90,000 square metres GFA under construction 516,000 square metres – under planning and initial phase of development
semi-detached houses, town houses, retail shops and
a hotel. The hotel will be managed by a well known
international hotel operator.
Sales Progress
Pre-sale of residential units was launched in phases
beginning in September 2007. Of the 200 units (approx.
29,000 m2 GFA) launched, 116 units (58%) have been
sold as of February 2009 at an average price of
approximately RMB 10,000/m2.
34 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Property
Located in the Huangpu District of Shanghai adjacent
to Xizang Nanlu and Jianguo Donglu, this premium
residential development is within walking distance of
the Lao Xi Men subway station on the new Metro Line
8. It includes residential towers and retail shops with a
basement car park.
New Westgate Garden 100% owned
Phase ISite area: 32,900 square metresGross floor area: 117,000 square metres (9,000 square metres on sale) Usage: Residential Number of units: 709Completed: June, 2006Current Status: 91% of units sold as of February 2009
Phase IISite area: 35,300 square metresGross floor area: 137,000 square metres Usage: Residential and retailExpected completion: 2014Current Status: Re-settlement in progress
The site was acquired in December 2007 and is situated
on the East side of the Sichuan Beilu Station. It will be
designed and developed into a combined landmark
project for this thriving district.
No. 10, Hainan Road100% owned
Site area: 16,400 square metresGross floor area: 66,000 square metresUsage: Office and retailExpected completion: After 2011Current status: Design in progress
Located in the Northwest of Shanghai, Jiading District
is the gateway to a number of neighbouring economic
regions such as Suzhou, Kunshan and Taicang in
Jiangsu Province. As the earliest satellite city of
Shanghai, Jiading is well known as a base for the science
and automobile industries. This development is
situated in the Shanghai city core area above the Jiading
New City Station of the new Metro Line No.11, which
will run across Jiading, Putuo, Changning, Xuhui and
Pudong New District upon completion, in phases
starting from end 2009. The project will be developed
in phases and include residences, offices, retail shops
and hotels. The development will be integrated with the
interchange hub of metro lines and other public
transport, as well as surrounding areas under a
comprehensive plan of residential districts, business
centres, sports and recreational parks and science
research districts.
Jiading New City Station of Metro Line No.11100% owned
Site area: 156,000 square metresGross floor area: 538,000 square metres Usage: Office, retail, hotel and residentialExpected completion: In phases from 2012 onwardsCurrent Status: Design in progress
Sichuan Beilu Station of Metro Line No. 1090% owned
Site area: 13,300 square metresGross floor area: 53,000 square metresUsage: Office and retailExpected completion: 2010 – 2011Current status: Construction in progress
Shanghai continued
CITIC Pacific and Shanghai
Shentong Metro Assets
Management Company
Limited jointly acquired this
site in Hongkou District in
early 2007. It is situated above
the Sichuan Beilu Metro
Station of Metro Line No. 10
which is currently under
construction and expected to become operational in
early 2010. The project comprises office buildings
and retail outlets that will benefit from the pedestrian
flow generated by the metro line and the overall
geographical advantage offered by Hongkou.
35CITIC Pacific Annual Report 2008
Zhejiang Province
CITIC Square, Ningbo 99.3% owned
Site area: 39,500 square metresGross floor area: 98,000 square metres Usage: Office and retailExpected completion: 2009Current Status: Superstructure works completed
This development is in the Jiangdong District of
Ningbo, the economic provincial capital as well as the
regional centre of economic development of Zhejiang
Province. The site is in close proximity to ‘Ningbo
Eastern New City’, the future political and economic
centre of the city. CITIC Square will be a Grade-A office
and retail development. Preparation for pre-leasing and
pre-sale is underway.
Binhu District Residential Project, Wuxi 70% owned
Site area: 2,110,300 square metresGross floor area: 249,000 square metres Usage: Residential and retailExpected completion: In phases from 2010 onwardsCurrent Status: Approx. 160,000 m2 GFA development under construction and topped out
Jiangsu Province
CITIC Pacific, together with the Wuxi Guolian Group,
is jointly developing this residential and commercial
property in the Binhu District of Wuxi. This site is
located in front of the scenic Tai Lake and is within
15 – 20 minutes driving distance of the city centre. The
project will be developed in phases with villas, town
houses, low-rise and mid-rise residential buildings,
all designed to take the advantage of the picturesque
landscape, golf course view and scenic view of Tai Lake.
Located in the Western part of the city centre, the site
will be developed in harmony with the historical
culture and neighboring environment of Yangzhou.
A variety of residential units in low-rise, mid-rise and
high-rise buildings will be provided.
Sales Progress
Pre-sale of residential units was launched in phases
beginning in September 2007. Of the 667 units (approx.
78,000 m2 GFA) launched, 501 units (75%) have been
sold as of February 2009 at an average price of
approximately RMB 5,800/m2.
Noble Manor, Yangzhou 100% owned
Site area: 328,600 square metresGross floor area: 437,000 square metres Phase I – 90,000 square metres Other phases – 347,000 square metresUsage: Residential and retail Expected completion: In phases from 2009 onwardsCurrent Status: Phase I at the final stage of completion Phase II construction in progress
36 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Property
CITIC Pacific is developing a leisure resort real estate
project on the Shenzhou Peninsula. The site has a
planning area of 38 square kilometres, with four south
facing beaches along eight kilometres of scenic
coastline. About 16 square kilometres will be developed
into a world class resort. As part of a new express
railway line along the East coast of Hainan Island
connecting the cities of Haikou and Sanya, a railway
station will be built at Wanning city, which is
approximately six kilometres from the Shenzhou
Peninsula site. Constructed by the Hainan provincial
government, completion of this new express railway is
targeted in 2011. By then, the accessibility of the
Shenzhou Peninsula site will be significantly improved
Jiangyin Residential Project, Jiangyin 56% owned
Site area: 91,300 square metresGross floor area: 178,000 square metres Usage: Residential and retailExpected completion: 2010 – 2011Current Status: Basement works and superstructure works in progress
Hainan Province
Shenzhou Peninsula Development, Wanning80% – 99.9% owned
Site area: 6,710,100 square metresGross floor area: 1,653,000 square metresUsage: Integrated residential, hotel, retail and recreationExpected completion: In phases from 2010 onwardsCurrent Status: Design and construction of Phase I (approx. 200,000 m2 GFA) in progress
Jiangyin is one of the fastest growing cities in Jiangsu
Province. CITIC Pacific and the Wuxi Guolian Group
are co-developing Jiangyin Xingcheng’s old steel mill
site in the Eastern city centre into a residential and
commercial property.
Sales Progress
Pre-sale of residential units was launched in December
2008. Of the 164 units (approx. 26,000 m2 GFA)
launched, 95 units (58%) have been sold as of February
2009 at an average price of approximately
RMB 7,800/m2.
from Haikou and Sanya, both regional hubs with
international scheduled flights.
CITIC Pacific is also the prime developer responsible
for the project’s overall planning, design and
infrastructure.
As at February 2009, CITIC Pacific had acquired
6.71 square kilometres of land. The construction of
two hotels, apartments and the infrastructure of Phase
I is progressing well. The hotels will be managed by
well-known international hotel operators. Opening of
the two hotels and pre-sale of apartments are expected
in 2010.
Jiangsu Province continued
37CITIC Pacific Annual Report 2008
Investment Properties
Approx. site area Approx. GFA Property Usage Ownership (sq. metre) (sq. metre)
CITIC Square, Shanghai Office, retail 100% 14,500 114,000
Royal Pavilion, Shanghai Serviced apartments 100% 8,800 35,000
New Westgate Garden, Retail Portion, Shanghai Retail 100% 32,900 18,000
Total 56,200 167,000
GFA = gross floor area
CITIC Square100% owned
Site area: 14,500 square metresGross floor area: 114,000 square metres Usage: Office and retail Completed: 2000
Shanghai
Royal Pavilion is a development of luxury serviced
apartments, with 75% occupancy as of February 2009.
Royal Pavilion100% owned
Site area: 8,800 square metresGross floor area: 35,000 square metres Usage: Serviced apartments Completed: 1998
The retail property is fully let.
New Westgate Garden – Retail Portion100% owned
Site area: 32,900 square metresGross floor area: 18,000 square metresUsage: RetailCompleted: 2006
A Grade-A office tower located on Nanjing Xi Lu, one
of the busiest commercial areas in Shanghai, CITIC
Square continues to enjoy steady rental income with
98% occupancy as of February 2009.
38 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Property
• 231,000 square metres of gross floor area to be developed in Discovery Bay
• Major investment properties include CITIC Tower, the Group’s headquarters, and DCH Commercial Centre
Hong Kong
Investment Properties
Approx. GFAProperty Usage Ownership (sq. metre)
CITIC Tower Office, retail 40% 52,000
DCH Commercial Centre Office, retail 100% 36,000
Wyler Centre I Industrial 100% 37,000
Broadway Centre Industrial 100% 32,000
Yee Lim Industrial Centre, Block C Industrial 100% 30,000
Others Various 100% 50,000
Total 237,000
GFA = gross floor area
Office Hotel
51%
49%
Development Investment
11%
4%
7%
78%
45%
7%
47%
Residential Industrial
Total gross floor area: 478,000 square metres
1%By gross floor area (GFA)
Retail
39CITIC Pacific Annual Report 2008
Development Properties
Discovery Bay
50% owned by CITIC Pacific, Discovery Bay is a large
residential development jointly developed with HKR
International Ltd. Since its launch in 1973, Discovery
Bay has evolved into a fully integrated, suburban
multinational residential community. Situated on the
northeastern shore of Lantau Island, adjacent to the
Disney Theme Park, Discovery Bay is endowed with
open space. Recreational and leisure facilities include
a private beach, central park, scenic promenade, golf
courses and a marina.
The current Yi Pak Bay development is located in the
Northern part of Discovery Bay. It has a gross floor area
of approximately 218,000 square metres, of which
91,000 square metres have been developed as Siena One
(Phase 11) and Siena Two (Phase 12). Chianti (Phase 13),
which has a gross floor area of 50,000 square metres, was
98% sold as of February 2009.
A hotel development of 26,000 square metres of gross
floor area at the Northern part of Discovery Bay is under
construction.
40 CITIC Pacific Annual Report 2008
Power Generation
At the end of 2008, CITIC Pacific owned a total
attributable capacity of 6,250MW. During the year, we
disposed of our 50% equity interest in the Kaifeng
power plant.
The total electricity generated in 2008 by all power
plants in which CITIC Pacific had an interest was 100
billion kwh, an increase of 5% from 2007. Heat
generated was 41,075kGJ, a slight decrease of 2%
compared with 2007.
In 2008, the price of coal rose significantly, averaging
46% across all of our power plants. The government
policy of passing on fuel cost increases was not
implemented, so power producers had to bear the rise
in the cost of coal and therefore suffered losses for the
year. Under these circumstances, our plants recorded
a loss for the year.
During the year, further improvements were made to
reduce emissions. Desulphurising systems are now
installed in all of our power plants.
In order to secure a stable supply of coal, we acquired
a 30% interest in a coal mine in Shandong Province with
annual production capacity of 6 million tonnes. This
coal mine has been profitable since the initial
production began in November 2008.
As we look at the prospects for 2009, the operating
environment is likely to be difficult, and shrinking
demand remains a key challenge for our power
business. A series of measures have been put in place.
We strive to reduce costs by improving operating
efficiency, while, increasing the stability of generating
units to achieve higher productivity. In addition, we
have already locked in the coal supply required by most
of our plants in 2009.
HK$ million 2008 2007 Change
(Loss) / profit contribution (%) (1,198 ) 494 (343)%
Segment assets 5,857 6,409 (9)%
Segment liabilities 6 32 (81)%
BUSINESS REVIEW
Other Businesses
Operational statistics of CITIC Pacific’s power plants
Electricity generated Heat generated InstalledPower Location capacity Utilisation 2008 2007 2008 2007plant (province) (MW) Ownership Type hours (m kWh) (m kWh) Change (kGJ) (kGJ) Change
Ligang Jiangsu Coal fired I & II 1,440 65% 4,907 7,066 8,748 (19)% NA NA NA III & IV 1,260 71.4% 4,373 10,757 6,165 74% NA NA NA
Hanfeng Hebei 1,320 15% Coal fired 5,284 6,974 7,427 (6)% NA NA NA
Huaibei Anhui 640 12.5% Coal fired 5,965 3,818 3,302 16% NA NA NA
Kaifeng* Henan – 50% Coal fired – – 588 – NA NA NA
North United Inner Mongolia 13,050 20% Coal fired 4,856 63,088 62,137 2% 25,844 27,423 (6)%
Zhengzhou Henan 1,000 50% Co-generation 5,682 5,682 4,874 17% 6,236 5,545 12%
Hohhot Inner Mongolia 400 35% Co-generation 5,532 2,213 2,472 (10)% 2,896 2,273 27%
Weihai Shandong 36 49% Co-generation 3,196 115 164 (30)% 3,383 3,694 (8)%
Chenming Shandong 24 49% Co-generation 3,033 73 154 (53)% 2,716 3,158 (14)%
* Sold in 2008
Cathay Pacificwww.cathaypacific.com
Cathay Pacific is an international passenger and freight
carrier based in Hong Kong, which together with its
subsidiaries Dragonair and Air Hong Kong, operates
a fleet of 162 aircraft providing services to more than
120 destinations in 37 countries around the world.
In 2008, Cathay Pacific registered a loss of HK$8,558
million compared with a profit of HK$7,023 million
in 2007. This loss was primarily due to the significant
decrease in both passenger and cargo demand in the
second half of the year, and a mark to market loss on
certain fuel hedging contracts which amounted to
HK$7.6 billion.
41CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Other Businesses
Aviation
Location Ownership
Cathay Pacific Hong Kong 17.5%
HACTL Hong Kong 10%
HK$ million 2008 2007 Change
(Loss) / profit contribution (994 ) 1,263 (179)%
Segment assets 7,982 10,689 (25)%
Segment liabilities – – –
HACTLwww.hactl.com
HACTL operates Super Terminal 1, the largest air cargo
terminal in the world. Total cargo throughput for 2008
was 2.5 million tonnes, down 4% from 2007.
42 CITIC Pacific Annual Report 2008
BUSINESS REVIEW
Other Businesses
Civil Infrastructure
Location Ownership Franchise till
Eastern Harbour Tunnel (Road) Hong Kong 71% 2016
Western Harbour Tunnel Hong Kong 35% 2023
HK$ million 2008 2007 Change
Profit contribution (%) 523 490 7%
Segment assets 2,464 2,470 –
Segment liabilities 34 31 10%
Eastern Harbour Tunnelwww.easternharbourtunnel.com.hk
The Eastern Harbour Tunnel registered average daily
traffic of 63,218 vehicles in 2008, a 1% decrease from
2007.
Western Harbour Tunnelwww.westernharbourtunnel.com
The Western Harbour Tunnel is a key section of the Route
3 highway connecting Hong Kong Island with mainland
China and Chek Lap Kok Airport. In 2008, average daily
traffic was 47,742 vehicles, down 2% from 2007.
CITIC Pacific also has a 35% interest in the company that
manages the Cross Harbour Tunnel on behalf of the
government.
43CITIC Pacific Annual Report 2008
Dah Chong Hongwww.dch.com.hk
56.7% equity held by CITIC Pacific
Stock code: 01828 (The Stock Exchange of Hong Kong)
Dah Chong Hong is primarily engaged in distribution of
motor vehicles, consumer and food products. It has
operations in Hong Kong and mainland China, as well as
Japan, Singapore and Canada. Dah Chong Hong was a
wholly owned subsidiary of CITIC Pacific until its listing
in October 2007.
HK$ million 2008 2007 Change
Profit contribution (%) 320 417 (23)%
Segment assets 9,462 6,831 39%
Segment liabilities 2,816 2,185 29%
Listed Subsidiaries
CITIC 1616www.citic1616.com
52.6% equity held by CITIC Pacific
Stock code: 01883 (The Stock Exchange of Hong Kong)
HK$ million 2008 2007 Change
Profit contribution (%) 181 157 15%
Segment assets 1,576 1,047 51%
Segment liabilities 747 472 58%
CITIC 1616 is Asia’s leading telecom service provider in
telecom hubbing, enterprise solutions and international
calling cards, servicing corporate and individual
clients in more than 60 countries as well as over 350
international telecom operators. CITIC 1616 was a
wholly owned subsidiary of CITIC Pacific until its
listing in April 2007.
44 CITIC Pacific Annual Report 2008
Financial Review
Despite a challenging year, the underlying businesses of the Group
remained strong. The Group will continue to focus on our strengths
in core businesses in a difficult global environment.
Group Performance 2008 proved to be a challenging year for the Group. Despite the strong
performance in our underlying businesses during the first half of the
year, our core activities were not immune from the ongoing economic
slowdown in mainland China and as a direct result of the global
economic crisis our businesses consequently slowed as the year
progressed.
A net loss of HK$12,662 million was attributable to shareholders for the
year ended 2008, compared with a net profit of HK$10,843 million in
2007. HK$14,632 million in losses (net of tax) were associated with a
number of leveraged foreign exchange contracts described elsewhere.
Before taking into account the effect of these leveraged foreign
exchange losses, the operating profit attributable to shareholders
was HK$1,970 million (net of tax), a 82% decline from 2007, due
to deteriorating market conditions in the second half of 2008 and
exceptional profits in 2007 arising from the listing of Dah Chong Hong
and CITIC 1616.
Consolidated Profit and Loss Account
Contribution by segments1
In HK$ million 2008 2007
Special steel 1,617 2,242
Iron ore mining (123 ) –
Property Mainland China 523 197
Hong Kong 490 534
Power generation (1,198 ) 494
Aviation (994 ) 1,263
Civil infrastructure 523 490
Dah Chong Hong 320 417
CITIC 1616 181 157
Other investments 1,530 111
Fair value change of investment properties (33 ) 1,217
Total 2,836 7,122
1 A business’s after tax profit that contributes to unallocated central interest, overhead and goodwill.
HK$ million
08
1,970
(14,632)
07
10,843
06
8,272
0504
3,534 3,989
Profit attributable to shareholders
0
3000
6000
9000
12000
15000
Foreign exchange loss
Contribution
Special steel
Iron ore mining
HK$ million
0807
(123)
Property Others
2,242
1,617
7311,013
4,149
329
45CITIC Pacific Annual Report 2008
• Special Steel In the Special Steel division, net income declined
from HK$2,242 million in 2007 to HK$1,617 million in 2008, a 28%
decline year-on-year. Although turnover overall increased 23% in
2008, steel prices traded lower and demand was reduced in the
second half of 2008, reflecting a general slowdown affecting the
mainland China economy. In 2008, Special Steel made an inventory
provision of HK$705 million in total, including HK$380 million for
the jointly controlled entities. The amount attributable to CITIC
Pacific’s interest was HK$513 million.
• Iron Ore Mining The Iron Ore Mining division realised a HK$123
million loss in 2008 as construction on essential infrastructure
continued. The loss was due primarily to operating expenses that
could not be capitalised for accounting purposes.
Contribution from Property
In HK$ million 2008 2007
Mainland China Sales 298 (147 )
Leasing 277 219
Tax rate change in 2007 – 177
Property under development (52 ) (52 )
Hong Kong Sales 125 256
Leasing 365 278
Total 1,013 731
• China Property In our China Property division, net profit increased
to HK$523 million in 2008 from HK$197 million in 2007. Leasing
income was relatively stable, with CITIC Square and other retail
properties showing an increase in rents on the back of long term
leases. The average occupancy rates were 95%. Sales from the New
Westgate Gardens and Qingpu reflected the slowdown in the luxury
property market in 2008 and the results were bolstered by a write-
back of HK$253 million impairment loss made in 2007 on phase II
of New Westgate Gardens.
Financial Review
46 CITIC Pacific Annual Report 2008
• Hong Kong Property While the strong leasing environment in early
2008 helped our rental properties in Hong Kong, the turmoil in the
financial sector, placed pressure on the commercial property
market. However due to long term leases entered into 2007 and in
early 2008, profits from leasing increased from HK$278 million in
2007 to HK$365 million in 2008. The average occupancy rate for
our Hong Kong portfolio was 93%. The HK$170 million profit on
property sales in 2008 was mainly due to the sale of the Motor
Services Centre in Yuen Long.
• Power Generation Despite an increase of 5% from 2007 of the
total electricity generated to 100 billion kwh, the power generation
division showed a HK$1,198 million loss, compared with a HK$494
million profit in the previous year. This was due to a sharp increase
in coal prices, averaging 46% across our coal plants, which outpaced
the maximum allowable tariff adjustments in 2008 which ranged
from approximately 4-15%, depending on the power plant. Due to
these factors, a net impairment loss of HK$449 million was booked
on the power generation business in 2008.
• Aviation Aviation division showed a HK$994 million loss, compared
with a HK$1,263 million profit in the previous year. Cathay Pacific
saw increased turnover of 14.9% from 2007 based on passenger
traffic growth of 7.3% over the year but suffered from mark-to-
market losses on derivatives used to hedge fuel prices that were not
effective hedges for accounting purposes. Our Aviation division
income was bolstered by a one time disposal gain of HK$403 million
on the sale of Air China Cargo.
• Civil Infrastructure Civil Infrastructure showed a profit increase to
HK$523 million in 2008 from HK$490 million in 2007. The Eastern
Harbour and Western Harbour tunnels suffered a slight decrease in
traffic (-2% a day) compared with 2007 due to the poorer economy
and the toll increase in the Western Harbour tunnel, but overall this
was offset by the increased revenue per vehicle.
• Dah Chong Hong The Group’s profit from Dah Chong Hong was
HK$320 million for 2008, compared with HK$417 million from
operations for 2007. Ownership in 2008 was approximately 57%
compared with 100% before listing in October 2007. As with our
47CITIC Pacific Annual Report 2008
other businesses, Dah Chong Hong was affected by the economy in
the final quarter but strong results from earlier in the year increased
after tax profit growth to HK$582 million in 2008 compared with
HK$522 million in 2007. The motor segment performed well in
Hong Kong and mainland China, compared with its other
businesses, despite slowing sales and aggressive price discounts
in the last quarter.
• CITIC 1616 The Group’s profit share from CITIC 1616 was
HK$181 million for 2008 as compared with HK$157 million for
2007. Ownership in 2008 was 53% compared with 100% before
listing in April 2007. CITIC 1616 improved operating performance,
with after tax profit growing from HK$263 million to HK$332
million in 2008. This was mainly due to organic growth in its core
voice, SMS and mobile value-added service businesses and the full
consolidation of CPCNet on a whole-year basis.
• Other Investments Profit from Other Investments increased to
HK$1,530 million in 2008, compared with a HK$111 million profit
in the previous year, mainly from a profit on the sale of listed
investments of HK$1,215 million.
TurnoverSpecial Steel and Dah Chong Hong accounted for the majority of the
growth in turnover of the Group.
Turnover at Dah Chong Hong increased by 21% mainly driven by
strong growth in its motor business.
In HK$ million 2008 2007
Special steel 22,758 18,501
Property Mainland China 544 1,090
Hong Kong 243 231
Civil infrastructure 734 750
Dah Chong Hong 19,496 16,050
CITIC 1616 2,486 1,486
Others 159 426
Total 46,420 38,534
0807
Special steelPropertyCivil infrastructureDah Chong HongCITIC 1616Others
10
20
30
40
50HK$ billion
Turnover by business segments
0
10000
20000
30000
40000
50000
Financial Review
48 CITIC Pacific Annual Report 2008
Change in Fair Value of Investment Properties The Fair Value Change of Investment Properties showed a small loss of
HK$33 million in 2008, compared with a revaluation gain of HK$1,217
million in 2007. This reflects the general slowdown in the commercial
property market in Hong Kong in the latter half of 2008 and the more
general slowdown of growth in mainland China.
Losses Due to Leveraged Forward Exchange Contracts The iron ore mining operations utilise USD as its functional currency
as the future revenues from its Iron Ore business are denominated
in USD. However, a substantial portion of its developmental and
operating expenditures are denominated in AUD, with smaller capital
expenditure exposures in RMB, the Euro, Swedish Krona and JPY. A
one-time loss of HK$15,891 million was incurred in 2008, due mainly
to losses on leveraged foreign exchange contracts intended to hedge
exposures at our Australian mining operations. Leveraged foreign
exchange contracts as at 30 June 2008 had a fair value gain of HK$53
million as at that date. Contracts entered into before 30 June 2008 gave
rise to losses of HK$389 million for the year ended 31 December 2008.
The remaining losses of HK$15,502 million arose on leveraged foreign
exchange contracts entered into in the second half of 2008. A deferred
taxation credit of HK$1,259 million has been recognised in the iron ore
mining operations. Hence, the leveraged foreign exchange loss, net of
tax, for the year 2008 was HK$14,632 million.
Leveraged forward exchange contracts with a maximum deliverable
amount of A$5.3 billion were novated to CITIC Group in December
2008, being the amount in excess of the AUD required for the project.
Eight remaining contracts with a maximum deliverable amount of
A$2.9 billion as at 31 December 2008 were retained to manage the
future AUD requirements of the iron ore mining operations. Certain
of the contracts retained by the Group have been restructured to plain
vanilla forward contracts. As at 31 December 2008, the remaining three
unstructured contracts had a maximum deliverable amount of A$2.0
billion. One of these contracts was restructured in March 2009, and the
remaining contracts will be restructured later in 2009.
49CITIC Pacific Annual Report 2008
In addition, certain leveraged forward exchange contracts for RMB
and the Euro were terminated in 2008. As at 31 December 2008, three
RMB target redemption forward contracts with maximum notional
amount of RMB 5.3 billion are held by the Group to manage the
remaining RMB exposures of the iron ore mining operations. Euro
exposures are not currently hedged by the Group.
Return on Equity 2 2008 has proved to be a difficult year, primarily as a result of the losses
arising from leveraged foreign exchange contracts but also due to
business conditions in the second half of the year described elsewhere.
Earnings per ShareEarnings per share grew over the past four years, but declined sharply
in 2008, due to the losses in leveraged foreign exchange contracts. The
share base has also grown with the issuance of 1,453,125,000 new shares
to the CITIC Group.
Interest ExpenseThe Group’s interest expense net of amounts capitalised increased from
HK$305 million to HK$747 million. Capitalised interest increased from
HK$680 million in 2007 to HK$1,086 million in 2008 and is mainly
attributed to property projects under development in mainland China
and our mining operations in Australia.
The weighted average cost of debt declined from 5.5% in 2007 to 4.7%
in 2008. This was due to interest rate cuts in Hong Kong and the United
States, and a decline in RMB borrowing rates.
Taxation Due to the losses of the Group in 2008, there was an income tax credit
of HK$578 million for the year (2007 tax expenses: HK$770 million).
Following the reduction of the income tax rate for China property
companies, the deferred taxation liabilities brought forward from 2006
were adjusted downwards by HK$180 million in 2007.
2 ROE = Profit Attributable to Shareholders / Shareholders’ Funds
Return on equity
06 0704 05 08
-30
-25
-20
-15
-10
-5
0
5
10
15
20
-30
-20
-10
0
10
20
ROE (not considering FX losses)ROE (considering FX losses)
%
HK$
08
(5.68)
07
4.91
06
3.77
0504
1.61 1.82
Earnings per share
0
1
2
3
4
5
6
Earnings per share (not considering FX losses)Earnings per share (considering FX losses)
0.88
Financial Review
50 CITIC Pacific Annual Report 2008
Balance Sheet Items
Group Segment Assets3
Group segment assets have increased from HK$97,564 million to
HK$117,493 million in 2008. Asset growth was mainly driven by our
three main lines of business – Special Steel, Iron Ore Mining in
Australia and Property. These businesses have increased their share of
total assets from 61% in 2007 to 72% in 2008. The share of our
Australian business has also increased substantially from 10% in 2007
to 18% in 2008 as the infrastructure build-out intensified in 2008.
In HK$ million 2008 2007
Special steel 28,848 21,489
Iron ore mining 20,976 9,780
Property Mainland China 22,529 16,086
Hong Kong 11,103 11,992
Power generation 5,857 6,409
Aviation 7,982 10,689
Civil infrastructure 2,464 2,470
Dah Chong Hong 9,462 6,831
CITIC 1616 1,576 1,047
Others 6,696 10,771
Total 117,493 97,564
Net Debt Net Debt has grown in line with the expansion plans for our businesses.
The Group expects net debt to begin to decline once the major capital
expenditure plans for the steel and mining businesses have been
completed in 2010 and 2011. New facilities in 2008 include a 20-year
US$1.3 billion project finance loan for the development of the
Australian iron ore mining project and US$380 million 12-year (from
delivery of the vessels) loan facilities for the purchase of twelve dry bulk
carriers for iron ore transportation.
3 Group segment assets represent segment assets + investments in jointly controlled entities + investments in associated companies
Group segment assets
28%
25%
18%
29%
39%
22%
10%
29%
Special steel Iron ore miningProperty Others
2007
2008
57%
18%
24%
1%
50%
10%
38%
2%
Hong Kong Mainland ChinaAustralia Others
Group segment assets by geographical area
2007
2008
Net debt
06 0704 05 0810000
15000
20000
25000
30000
35000
40000
10,000
15,000
20,000
25,000
30,000
35,000
40,000HK$ million
51CITIC Pacific Annual Report 2008
Shareholders’ FundsShareholders’ Funds declined from HK$59,793 million in 2007 to
HK$49,971 million as at 31 December 2008. The Shareholders’ Funds
were reduced by the loss of HK$12,662 million and the 2008 interim
and 2007 final dividend payment of HK$2,415 million, but increased
by HK$2,470 million with the issue of 1,453,125,000 new shares to the
CITIC Group. The new capital structure of the Company is set out in the
table below. The other major movements in Shareholders’ Funds were
due to a reduction of HK$4,095 million on the disposal of financial
assets and mark-to-market losses on foreign exchange and interest rate
hedges effective for accounting purposes of HK$3,459 million.
After Before
Shares outstanding 3,646,274,160 2,193,149,160
Shareholder CITIC Group 57.6% 29.4%
Larry Yung 11.5% 19.1%
Management 1.8% 3.2%
Public 29.1% 48.3%
Total 100% 100%
Dividends The Board has proposed not paying a final dividend for 2008, therefore
the total dividend per share is HK$ 0.30, paid as an interim dividend in
June 2008.
0807060504
HK$
Dividend per share
Special dividend – interimSpecial dividend – final
Final dividendInterim dividend
Dividend yield
0.80
5.0% 5.1%
3.2%
3.7%
0.30
1.100.80
0.30
0.80
0.30
0.40
1.10
1.70
1.40
0.30
3
4
5
6
7
8
6.3%
0.30
0.30
0.80
0.20
Financial Review
52 CITIC Pacific Annual Report 2008
Capital Expenditure Capital expenditure has continued to grow over the past five years with
the Australian mining operations accounting for the largest share of the
growth in the past two years. This share will fall as construction nears
completion in 2011.
In HK$ million 2008 2007
Special steel 8,381 1,442
Iron ore mining 10,010 6,844
Property Mainland China 5,049 4,159
Hong Kong 9 366
Power generation 581 –
Aviation – –
Civil infrastructure 16 5
Dah Chong Hong 515 323
CITIC 1616 116 62
Other investments 2,172 1,108
Total 26,849 14,309
The Group has maintained its focus on its core businesses and has
continued to invest approximately HK$8.4 billion in the Special Steel
division, HK$10.0 billion in the Australian mining project and
HK$5.1 billion in its Property division, accounting for 31%, 37%
and 19% of the total respectively.
• The capital expenditure for the steel business in 2008 mainly
represented the construction of a new special steel plate production
line at the Jiangyin steel plant with a capacity of 1.2 million tonnes.
At Xin Yegang two new lines capable of producing 630,000 tonnes of
medium to thick wall seamless steel tubes are under construction.
• The capital expenditure for the iron ore mining project has
continued with the infrastructure build-out and construction
intensified during the year. Major milestones in 2008 include
the construction of earthworks for the power plant pad and
construction of the first of two excavators. Construction of
earthworks for the concentrator pad site have also begun with
drilling and blasting in 2008. Included in these costs was a total
deposit of HK$1.5 billion for the purchase of specially designed
ships to transport the iron ore.
0807060504
HK$ billion
Capex by business segments
Special steel Iron ore miningProperty Others
5
10
15
20
30
25
0
5000
10000
15000
20000
25000
30000
0807
CAPEX OPEX Dividend
20
40
60
80
100
%
Group cash outflow by nature
0
5000
10000
15000
20000
25000
30000
35000
53CITIC Pacific Annual Report 2008
• The property projects currently under construction in mainland
China include projects in Shanghai, Qingpu, Ningbo, Yangzhou
and Hainan Island. In Hong Kong, the construction of a hotel in
Discovery Bay is ongoing.
• Included in the capital expenditure for Other Investments is an
outlay for the acquisition of a 30% interest in the Xinjulong Coal
Mine in Shandong, as the Group moves to secure the raw materials
needed for our steel and power plants.
Cash Contributed from All Businesses 4
Inflows to the Company totalled HK$8,194 million in 2008 compared
with HK$13,201 million in 2007.
In HK$ million 2008 2007
Special steel 194 2,196
Iron ore mining – –
Property Mainland China 925 1,368
Hong Kong 1,092 833
Power generation 242 621
Aviation 1,428 508
Civil infrastructure 510 990
Dah Chong Hong 88 4,448
CITIC 1616 53 1,919
Others 3,662 318
Total 8,194 13,201
4 See ‘Definition of Terms’ on page 180.
19%
13%
31%
37%
Special steel Iron ore miningProperty Others
Capex by segment
32%
10% 10%
48%
2007
2008
0807
20
40
60
80
100
%
Cash inflow by segment
0
3000
6000
9000
12000
15000
0
2000
4000
6000
8000
10000
Special steel PropertyOthers
54 CITIC Pacific Annual Report 2008
In light of the uncertain global economic environment, CITIC Pacific
is placing an increased emphasis on strengthening its policies and
procedures in order to mitigate the effects of sudden adverse changes in
market conditions.
General Policies• Maintain central management of financial exposures while
delegating finance raising to individual business units where
appropriate, employing limited or non-recourse project finance
when available
• Diversify funding sources through utilisation of both banking and
the capital markets
• Arrange financing to match each business’s characteristics and cash
flow to the extent that it is possible
ResponsibilitiesThe Group’s overall risk management program seeks to minimise the
impact of fluctuations in exchange rates, interest rates and various
commodity price fluctuations on the Group’s financial performance.
In response to losses arising from the Group’s leveraged foreign
exchange contracts reported elsewhere, management has taken several
concrete steps to strengthen our risk management policies and
procedures. An Asset and Liability Management Committee (‘ALCO’)
was set up by the Board in October 2008 to oversee these procedures
and monitor the exposures of the Group. PricewaterhouseCoopers
(‘PwC’) was engaged to provide advice on the Group’s financial risk
management policies and procedures.
The Group Finance Department is responsible for maintaining and
implementing the Group’s financial risk management policies and
procedures endorsed by ALCO within an agreed framework authorised
by the Board.
Treasury Risk Management
55CITIC Pacific Annual Report 2008
The Group Finance Department monitors funding requirements of the
Group along with interest rate, currency, credit and liquidity risks. This
portfolio approach to financial risk management enables activities in
these areas to be carried out more economically and efficiently, and
allows a greater degree of transparency for the Group.
Overseas subsidiaries and jointly controlled entities are responsible for
managing their liquidity, certain interest rate risks, certain foreign
exchange risks and specific commodity price risks under policies
approved by the boards of their respective companies, but also within
the confines of the overall ALCO strategy.
The Group’s listed subsidiary companies – Dah Chong Hong, CITIC
1616 and Daye Special Steel, manage their financial and treasury affairs
themselves, within Group policies.
Derivatives PolicyDerivatives have been used to assist in the management of interest rate
and exchange rate risks. To the extent possible, gains and losses of the
derivatives offset the losses and gains on the assets, liabilities or
transactions being hedged as accounting hedges.
The fair value of outstanding derivative transactions is calculated
monthly, based on price quotations obtained from major financial
institutions. These derivative instruments are monitored periodically
to test for the effectiveness of the hedging strategies involved.
Following ALCO’s review of the Group’s policies and procedures,
the use of financial instruments has currently been restricted to
borrowings, deposits, interest rates swaps and plain vanilla foreign
exchange contracts. The use of structured derivatives and instruments
that contain embedded options will require presentation to and the
approval of ALCO.
It is the Group’s policy not to enter into transactions, derivative or
otherwise, for speculative purposes.
Treasury risk ManageMenT
56 CITIC Pacific Annual Report 2008
Foreign Exchange RiskThe Group has major operations in Hong Kong, mainland China and
Australia. Therefore it is subject to market risk in foreign exchange rates
involving HK dollars (‘HKD’), US dollars (‘USD’), Renminbi (‘RMB’)
and Australian dollars (‘AUD’). There are also exposures to the
Japanese Yen (‘JPY’) (operations and assets related to dch), Euro
(‘EUR’) and Swedish Krona (‘SEK’) (equipment purchases).
The Group strives to reduce balance sheet currency exposure by
matching assets with borrowings in the same currency to the extent
possible. It is the Group’s policy to hedge transactions where value or
time to execution will give rise to material currency exposure, provided
that the cost of the hedging instrument is not prohibitively expensive in
comparison to the underlying exposure.
The Group’s major foreign currency exposures arise from:
i) its capital expenditures relating to its iron ore mining operations in
Australia;
ii) its steel and property operations in mainland China denominated in
RMB and;
iii) USD denominated debt.
The Group does not hedge translational currency exposures from the
consolidation of subsidiaries, whose functional currency is not HKD,
as this is a non-cash exposure.
US Dollar (USD) The Group seeks to diversify its funding sources and
also match funding requirements to subsidiaries whose functional
currency and revenues are in USD through USD denominated
borrowings. As at 31 December 2008, the Group has HK$8.5 billion
equivalent of USD debt exposure which is fully hedged into HKD
through the use of forward contracts and cash on hand.
Renminbi (RMB) The Group’s businesses in China represented an asset
exposure in RMB of approximately HK$67 billion as at 31 December
2008 (2007: HK$50 billion). RMB is currently not a freely convertible
currency and ‘Registered Capital’, which usually accounts for no less
than 25% of the total investment amount for projects in mainland
China, is required to be paid in foreign currency. As the Group’s
investment in mainland China is expanding, CITIC Pacific has an
increasing exposure to the RMB.
57CITIC Pacific Annual Report 2008
For the Australian mining operations, certain RMB denominated
capital expenditures to pay the main contractor have been managed
through non deliverable RMB target redemption forward contracts.
The maximum notional amount of these contracts is RMB 5.3 billion.
Australian Dollar (AUD) The Australian mining operations utilise
USD as its functional currency as the future revenues from its iron ore
business are denominated in USD. However, a substantial portion of its
developmental and operating expenditures are denominated in AUD.
USD / AUD forward contracts and leveraged foreign exchange contracts
were employed to manage these currency exposures.
The Group entered into multiple leveraged AUD foreign exchange
contracts mainly in the second half of 2008. These contracts were
intended to minimise the currency exposure of the Group’s iron ore
mining project. Due to substantial movements in the AUD to USD
exchange rate, these contracts gave rise to substantial realised and mark
to market losses and due to their leveraged features the amount of AUD
to be delivered to the Group increased significantly and exceeded the
Group’s needs for AUD. Leveraged foreign exchange contracts with a
maximum deliverable amount of A$5.3 billion, being contracts
delivering AUD in excess of the Group’s needs were novated to CITIC
Group in December 2008.
The remaining contracts with a maximum deliverable amount of
A$2.9 billion as at 31 December 2008 were retained to provide for the
Group’s further AUD needs. During the year, some of these remaining
contracts were restructured into plain vanilla forward contracts that
qualify as accounting hedges, as their maturity matches the need of the
business. As at 31 December 2008, three unrestructured contracts with
a maximum deliverable amount of A$2.0 billion were outstanding. One
of the contracts was restructured in March 2009 into plain vanilla
contract and the remaining two are intended to be restructured later
in 2009.
Japanese Yen (JPY) CITIC Pacific issued a JPY Bond in 2005 to
diversify its funding sources. From an economic perspective, this
bond’s currency exposure is managed through a cross currency swap
into HKD floating rate payments which does not qualify as an
accounting hedge. In addition to the JPY bond, as at 31 December 2008,
JPY 6,434 million of exposure remains at the CITIC Pacific level.
Treasury risk ManageMenT
58 CITIC Pacific Annual Report 2008
Interest rate base
Fixed Floating
HKD
USD
All currencies
As at 31 December 2008
26%
24%
74%
76%
24% 76%
For the Australian mining operations, as at 31 December 2008, there
was a net JPY 1,814 million exposure for capital expenditures to
purchase machinery. This position is partially hedged using plain
vanilla forward contracts.
Swedish Krona (SEK) The Group’s SEK exposure amounted to SEK 373
million at 31 December 2008 due to a contract with Siemens to supply
a steam turbine generator for the Sino Iron project. This position is
currently partially hedged using plain vanilla forward contracts.
Euro (EUR) The Group’s EUR exposure amounted to EUR 101 million
at 31 December 2008. This exposure is generated by contracts for
procurement and design services for the Australian mining project. This
position is currently not hedged as the amount is not viewed as material
in terms of the operations of the Group.
Subsequent to the losses incurred with respect to the Group’s leveraged
foreign exchange forward contracts in 2008, the list of approved
derivative instruments has been restricted to plain vanilla foreign
exchange forwards and interest rate swaps.
Interest Rate Risk The Group’s interest rate risk arises primarily from borrowings.
Borrowings at variable rates expose the Group to cash flow interest rate
risk. Borrowings at fixed rate expose the Group to fair value interest
rate risk.
The Group Finance Department manages this risk by considering the
portfolio of all of the Group’s interest bearing assets and liabilities.
The net desired position is then managed by borrowing fixed rate and
through the use of interest rate swaps which have the economic effect of
converting floating rate borrowings into fixed rates.
The appropriate ratio of fixed / floating risk for the Group is reviewed
periodically. The level of fixed rate debt is decided after taking into
consideration the potential impact of higher interest rates on profit,
interest cover and cash flow cycles of the Group’s business and
investments.
59CITIC Pacific Annual Report 2008
As at 31 December 2008, the Group’s portfolio of interest rate derivative
contracts had a notional amount of HK$13.2 billion. After hedging,
76% of the borrowing for the Group was floating rate.
The 2008 result includes non-cash charges of HK$507 million for
interest rate hedging transactions that are economically effective but do
not qualify as accounting hedges.
Interest rates rose in the first half of 2008, due to strong inflation
concerns, but later in the year Central Banks cut interest rates
aggressively in response to the global financial crisis. To fix interest
rates, the Company entered into HK$16.4 billion of swaps to lock-in
fixed rates for periods up to 20 years. These swaps, arranged to match
the intended increase in borrowings and the requirements of the iron
ore mining project, become effective in 2009 and 2010 and the projected
ratio of fixed rate to total borrowings of the current portfolio is
projected to be 38% on 31 December 2009.
The Group’s overall weighted all-in cost of borrowing (including fees
and hedging costs) in 2008 was approximately 4.7% compared with 5.5%
in 2007.
Credit RiskTo manage counterparty risk, the Group deals with international
financial institutions with a credit rating of investment grade or above.
The recommended credit rating was subsequently raised to A- (S&P)
or A2 (Moody’s) and above by ALCO in 2009. For mainland Chinese
institutions that do not have an international credit rating, a maximum
deposit limit is set that does not exceed the amount borrowed from
those institutions. Deposits are liquid, interest-bearing and consistent
with treasury and business purpose needs.
The Group Finance Department is responsible for monitoring the limits
and the list of approved financial institutions. Management does not
expect any losses from non-performance from these counterparties.
Average borrowing costs
06 0704 05 08
0
1
2
3
4
5
6
1%
2%
3%
4%
5%
6%
Treasury risk ManageMenT
60 CITIC Pacific Annual Report 2008
Liquidity RiskThe Group takes liquidity risk into consideration when deciding its
source of funds and their respective tenors. It manages its liquidity risk
by maintaining substantial undrawn committed credit facilities, money
market lines and cash deposits so as to avoid over reliance on any one
source and to prevent substantial refinancing in any one period. In
addition, the Company has established co-operative agreements with
major PRC banks. These arrangements can shorten the credit approval
processes substantially when applying for RMB loans.
Management monitors rolling forecasts of the Group’s liquidity reserve
(comprised of undrawn committed credit facilities and cash and cash
equivalents on the basis of expected cash flows). In addition, the
Group’s liquidity management procedures involves projecting
cashflows in major currencies, and considering the level of liquid assets
necessary to meet these cash flow requirements. Group Finance also
monitors balance sheet liquidity ratios against internal requirements
and maintains debt financing plans.
On 24 December 2008, to bolster its capital base, CITIC Pacific issued a
convertible bond to CITIC Group. The convertible bond was converted
into 1,453,125,000 shares of CITIC Pacific on the same day. CITIC Group
simultaneously agreed to assume the liabilities and benefits of a number
of AUD target redemption forward contracts. CITIC Group paid
approximately HK$2.47 billion to CITIC Pacific, being the net amount
payable to CITIC Pacific by way of setting off the monies due from the
CITIC Group under the subscription of the 1,453,125,000 shares against
the amount payable by CITIC Pacific to CITIC Group in respect of the
assumption of the liabilities and benefits of the contracts novated to
CITIC Group.
61CITIC Pacific Annual Report 2008
Group Debt and LiquidityCITIC Pacific seeks to secure financing and resources from a diversified set
of counterparties on the most competitive terms available in the market.
It is our objective to retain sufficient liquidity to maintain our financial
flexibility and to maintain our credit rating.
At the end of December 2008, CITIC Pacific has multiple borrowing
relationships with financial institutions in Hong Kong, mainland China
and internationally. The Group’s policy is to diversify funding sources
through bank lending and tapping the capital markets. It seeks to
maintain a mix of short and long term borrowing to stagger maturities
and minimise refinancing risk.
The Group’s subsidiaries and affiliates secure their own debt facilities
to fund their investments, to the extent possible, without recourse to
the Group. The major exceptions are CITIC Pacific’s guarantee for the
US$1.3 billion syndicated loan to fund its mining operations which will
be released upon fulfillment of certain conditions subsequent, and its
guarantee for interest rate and foreign exchange hedging transactions
entered into by Sino Iron Pty Ltd. CITIC Pacific has also provided a
guarantee for a 20-year US$1.1 billion corporate loan to the phase II
project company for the mining operations.
The financial position of the Group as at 31 December 2008 as
compared with 31 December 2007 is as follows:
HK$ million 2008 2007
Total debt 57,234 28,654
Cash and bank deposits 18,296 8,045
Net debt 38,938 20,609
Total debt increased significantly due to investments in the Group’s
steel and property businesses in mainland China, purchases of vessels
as well as significant capital expenditure outlays for the Australian
mining business, for which construction intensified in the past year.
The Company’s cash position was bolstered by the issuance of a
convertible bond to CITIC Group which was converted into
1,453,125,000 shares, with the Company receiving a net amount of
HK$2.5 billion, HK$3.4 billion from the sale of listed investments and
HK$917 million from the sale of Air China Cargo.
Treasury risk ManageMenT
62 CITIC Pacific Annual Report 2008
Changes in FinancingDuring the year, bilateral facilities totalling HK$14 billion were
established or renewed at the Company and subsidiary level.
For the development of the Australian iron ore mining project, a
20-year US$1.3 billion project finance loan was signed. In addition,
a 20-year US$1.1 billion corporate loan was arranged, which is
intended to be converted into a project finance loan in due course.
As at 31 December 2008, US$792 million of the project finance loan
was drawn down.
The Company has also completed a ship financing transaction for
US$380 million 12-year term (from delivery of the ships) loan facilities
for the purchase of twelve 115,000 DWT capesize dry bulk carriers for
iron ore transportation.
Currency ProfileThe denomination of the Group’s borrowings and cash and deposit
balances by currency as at 31 December 2008 is summarised as follows:
Denomination
HK$ million equivalent HK$ US$ RMB JPY Other Total
Total debt in original currency 14,886 30,165 10,970 1,134 79 57,234
Total debt after hedging 23,768 21,812 10,970 605 79 57,234
Cash and bank deposits 3,813 4,972 6,668 206 2,637 18,296
Net debt / (cash) after hedging 19,955 16,840 4,302 399 (2,558 ) 38,938
The Group actively seeks to diversify its funding sources so as not to
be reliant on any one market. The Group uses cross currency swaps to
manage foreign exchange rate risk from borrowings denominated in
USD and JPY and convert the cash flows into HKD.
Total debt after hedging
As at 31 December 2008
HKD JPYUSD RMB
1%
38%
19%
42%
63CITIC Pacific Annual Report 2008
As at 31 December 2008HK$ billion
14 andbeyond
13.6
11 to 13
3.5
1009
1.20.2
Available committed facilities by maturity (total HK$18.5 billion)
0
3
6
9
12
15
Available Sources of FinancingIn addition to the cash and deposits balance of HK$18.3 billion as at
31 December 2008, the Group had available loan and trade facilities
totalling HK$20.3 billion and HK$3.4 billion respectively. Borrowings
by source of financing as at 31 December 2008 are summarised as
follows:
Total Available Percentage HK$ million facilities Outstanding facilities available
Committed facilities Short term loan * 4,290 3,198 1,092 25%
Term loans 63,469 46,056 17,413 27%
Global bonds (USD Bond) 3,510 3,510 – 0%
Private placement (JPY Bond) 529 529 – 0%
Total committed 71,798 53,293 18,505 26%
Uncommitted facilitiesMoney market lines and short term facilities 5,645 3,833 1,812 32%
Trade facilities 4,536 1,163 3,373 74%
* This is a USD short term bridging loan to support the funding requirement of the iron ore mining project Phase II.
As at 31 December 2008, total committed facilities amounted to
HK$71.8 billion, of which HK$18.5 billion (26%) remain undrawn.
In addition to the above facilities, the Company has established
Cooperative Agreements with major banks in mainland China. Under
these Cooperative Agreements, CITIC Pacific’s projects in mainland
China can apply for credit facilities subject to the banks’ approval
on a project-by-project basis in accordance with banking regulations
in the Mainland.
LeverageNet debt divided by total capital was 44% as at 31 December 2008
compared with 26% at the end of 2007.
Available facilities by type (total HK$23.7 billion)
As at 31 December 2008
Long term loan Short term loanTrade
8%
5%
13%
74%
Money market
HK$ billion
Leverage
Net debt
Total capitalNet debt/total capital %
32%24%
26%
44%
25%
06 0704 05 080
20
40
60
80
100
0
10
20
30
40
50
20
40
60
80
100
Treasury risk ManageMenT
64 CITIC Pacific Annual Report 2008
Maturity Profile of Outstanding DebtThe Group prefers raising long term debt over short term debt and
actively manages its debt portfolio to ensure that the debt maturing
in each year will not exceed the anticipated cash flow and the Group’s
ability to refinance the debt in that year. As at 31 December 2008,
outstanding loans that will mature at the end of 2009 amounted
to HK$9.4 billion, against a cash and deposits balance totaling
HK$18.3 billion.
The weighted average life of the Group’s debt was 5.6 years (2007: 6.0
years).
2014 and HK$ million 2009 2010 2011 2012 2013 beyond Total Percentage
Parent company 4,601 2,992 7,690 1 7,550 4,245 8,799 2 35,877 63%
Subsidiaries 4,781 2,633 3,896 1,005 991 8,051 21,357 37%
Total maturing debt 9,382 5,625 11,586 8,555 5,236 16,850 57,234 100%
1. Includes a US$450 million global bond due in 2011 which was issued by a wholly owned special purpose vehicle.
2. Includes a JPY 8.1 billion floating rate note due in 2035 which was issued by a wholly owned special purpose vehicle.
Debt / Cash in Jointly Controlled Entities and Associated CompaniesFor accounting purposes, some of the Group’s businesses are classified
as jointly controlled entities and associated companies. The following
table shows the debt / cash position of jointly controlled entities and
associated companies by business sector as at 31 December 2008 which,
under Hong Kong generally accepted accounting standards, are not
consolidated into the Group’s accounts.
Business Sector Proportion of net debt / (cash) HK$ million Total net debt / (cash) attributable to CITIC Pacific
Special steel 3,317 2,320
Property Mainland China 101 50
Hong Kong (508 ) (248 )
Aviation 25,198 4,407
Power generation 57,640 14,576
Civil infrastructure 2,969 1,023
Dah Chong Hong (11 ) (5 )
Other investments 4,728 1,984
Total 93,434 24,107
Outstanding debt by type
As at 31 December 2008
Long term loan Short term loanBond Money market
6%
7%7%
80%
Outstanding debt by maturity
As at 31 December 2008
2009 2010 2011 20122014 and beyond2013
30%16%
10%
20%
15%
9%
65CITIC Pacific Annual Report 2008
The debt amounts shown in the above table were arranged by jointly
controlled entities and associated companies without recourse to their
shareholders. None of these debts is guaranteed by CITIC Pacific or its
subsidiaries, except for a HK$27 million bank facility from a JCE is
guaranteed by CITIC Pacific. Certain of the Group’s investments, such
as Discovery Bay, are 100% financed by their shareholders and do not
have any external borrowings.
Pledged AssetsAs at 31 December 2008, assets with a net book value of HK$746
million (2007: HK$423 million) were pledged to secure banking
facilities, mainly related to Dah Chong Hong’s overseas business and
to a property subsidiary in mainland China. In addition, assets of
HK$15.1 billion of the iron ore mining project were pledged under its
project finance arrangement. Shipbuilding contracts of HK$5.1 billion
for the 12 ships relating to the project were also pledged as security for
the ships financing.
Contingent LiabilitiesDetails of the Group’s contingent liabilities as at 31 December 2008 are
stated under Note 38 to the Financial Statements.
Loan CovenantsOver the years, CITIC Pacific has developed a set of standard loan
covenants to facilitate the management of its loan portfolio and debt
compliance. The financial covenants are generally limited to three
major categories, namely, a minimum net worth undertaking, a
maximum ratio of total borrowings to net worth and a limit on the
amount of pledged assets as a percentage of the Group’s total assets.
CITIC Pacific monitors these ratios on a regular basis and has been in
compliance with these ratios.
Actual Covenant limits 2008
Minimum consolidated net worthConsolidated net worth ≥ HK$25 billion HK$51.7 billion
GearingConsolidated borrowing / consolidated net worth ≤ 1.5 1.11
Negative pledge Pledged assets / consolidated total assets ≤ 30% 0.5%
66 CITIC Pacific Annual Report 2008
Treasury risk ManageMenT
For the purpose of the above covenant limits, as defined in the relevant borrowing agreements: ‘Consolidated net worth’ means the aggregate of shareholders’ funds, goodwill from acquisitions and developments having been written off against reserves or the profit and loss account, convertible debt and subordinated debt (including perpetual debt). ‘Consolidated Borrowing’ means the aggregate of all consolidated indebtedness for borrowed money (includes indebtedness arising under acceptances and bills of exchange other than in respect of goods or services acquired in the ordinary course of business) and all contingent obligations in respect of indebtedness for borrowed money other than aforesaid consolidated indebtedness for borrowed money. ‘Negative Pledge’ allows certain exceptions including but not limited to any security over any asset acquired or developed, which security is created to finance or refinance the acquisition or development of such asset.
Credit RatingsIn November 2008 Moody’s and Standard & Poor’s downgraded their
long-term credit ratings for the Company to Ba2 and BB respectively,
following losses on the Company’s derivative portfolio. Following the
issuance and conversion of the convertible bond into shares to CITIC
Group, in February 2009, Moody’s and Standard & Poor’s upgraded the
Company’s credit rating to Ba1 and BB+ respectively.
One of the Group’s risk management objectives is to maintain a stable
credit profile. Despite the uncertain economic environment, the
stability of our core businesses will ensure that we meet all our
commitments to our lenders and allow us to secure replacement or
additional financing to support our funding needs in the future.
Forward Looking StatementsThis Annual Report contains certain forward looking statements with
respect to the financial condition, results of operations and business of
the Group. These forward looking statements represent the Company’s
expectations or beliefs concerning future events and involve known
and unknown risks and uncertainty that could cause actual results,
performance or events to differ materially from those expressed or
implied in such statements.
Forward looking statements involve inherent risks and uncertainties.
Readers should be cautioned that a number of factors could cause
actual results to differ, in some instances materially, from those
anticipated or implied in any forward looking statement.
67CITIC Pacific Annual Report 2008
Ten Year Statistics
As restated At year end (HK$ million) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Shareholders’ funds 37,580 40,650 40,781 41,742 37,848 36,921 39,103 46,510 59,793 49,971
per share (HK$) 17.67 18.51 18.62 19.07 17.29 16.84 17.83 21.18 27.03 13.70
Debt Debt 18,563 15,709 14,639 9,267 10,528 14,580 21,218 18,293 28,654 57,234
Bank deposits 8,044 5,201 4,631 2,545 5,511 2,417 2,579 3,679 8,045 18,296
Net debt / total capital 22% 21% 20% 14% 12% 25% 32% 24% 26% 44%
Interest cover 4x 5x 6x 12x 8x 15x 11x 20x 50x (13)x
Capital employed 56,143 56,359 55,420 51,009 48,376 51,501 60,321 64,803 88,447 107,205
Property, plant and equipment 3,556 4,983 6,293 4,174 4,335 6,066 8,871 9,491 12,154 23,028
Investment properties 5,374 5,531 5,357 8,493 7,923 8,115 8,645 9,604 10,895 11,230
Properties under development 240 246 460 586 679 1,672 1,849 2,712 4,288 9,848
Leasehold land 1,123 1,102 1,076 1,094 1,194 1,596 1,618 1,712 1,641 2,320
Jointly controlled entities 1,396 2,019 2,365 3,582 4,085 7,852 10,413 14,922 17,446 21,140
Associated companies 20,859 23,497 22,704 22,183 22,584 21,439 23,239 16,416 17,941 15,084
Other financial assets 14,511 9,264 8,070 7,092 1,027 1,121 929 2,819 7,502 1,063
Intangible assets 1,601 1,547 1,842 1,697 1,619 1,785 1,795 3,581 4,602 8,979
Stock market capitalisation 62,230 60,720 37,993 31,514 43,332 48,444 47,038 58,952 96,338 30,556
Number of shareholders 13,506 9,808 11,044 12,260 12,198 11,554 11,262 10,433 8,571 8,712
Staff 10,490 11,354 11,733 11,643 12,174 15,915 19,174 23,822 24,319 28,654
For the year (HK$ million)
Net profit / (loss) after tax Net profit / (loss) after tax 2,729 3,283 2,084 3,835 1,148 3,534 3,989 8,272 10,843 (12,662 )
per share (HK$) 1.28 1.49 0.95 1.75 0.52 1.61 1.82 3.77 4.91 (5.68 )
Contribution by major businesses Special steel 22 29 95 126 178 438 808 1,333 2,242 1,617
Iron ore mining – – – – – – – – – (123 )
Property Mainland China – – – 103 112 125 154 308 197 523
Hong Kong 734 414 625 783 243 434 952 1,727 534 490
Power generation 440 314 281 245 229 439 368 268 494 (1,198 )
Aviation 659 1,475 324 1,263 421 1,398 1,058 3,288 1,263 (994 )
Civil infrastructure 1,292 1,320 1,362 1,238 635 329 413 469 490 523
Dah Chong Hong 230 221 105 234 253 284 233 297 417 320
CITIC 1616 – 39 129 252 116 120 122 191 157 181
Other investments 831 439 181 530 337 220 (117 ) 174 128 1,530
Net gain from listing of subsidiary companies – – – – – – – – 4,552 * –
Fair value change of investment properties – – – – (587 ) 181 755 1,077 1,217 (33 )
EBITDA 4,763 5,238 3,921 5,691 3,126 5,666 6,412 11,882 15,160 (9,925 )
Dividends per share (HK$)
Regular 0.75 0.85 0.80 1.00 1.00 1.10 1.10 1.10 1.20 0.30
Special 2.00 – – 1.00 – – – 0.60 0.20 –
Cover 1.7x 1.8x 1.2x 1.8x 0.5x 1.5x 1.7x 3.4x 4.1x (18.9)x Note:1. 2007’ figures have been restated to reflect the Group’s adoption of HK(IFRIC) – Int 12 ‘Service Concession Arrangement’.2. Prior years’ figures have been restated to reflect the Group’s adoption of Hong Kong Financial Reporting Standards except the figures have not been adjusted for years 2001 and before following the adoption of revised accounting standard of HKAS 12 ‘Income Tax’ in year 2002.* Include spin-off profit from the listing of subsidiary companies, Dah Chong Hong and CITIC 1616 in 2007.
68 CITIC Pacific Annual Report 2008
Human Resources
As at the end of December 2008, the Group employed
a total of 28,654 staff (2007: 24,319) in its headquarters
in Hong Kong and principal subsidiaries worldwide.
The two main areas of concentration are in Hong
Kong employing 4,456 (2007: 4,043) and in mainland
China employing 23,559 (2007: 19,868). Another 639
(2007: 408) staff are employed in subsidiaries in
Australia, Japan, Singapore, Taiwan and Canada.
The majority of the increase in employees was due to
Dah Chong Hong’s acquisition of new businesses in
mainland China.
25,000
20,000
15,000
10,000
5,000
Employees by location
Hong Kong Mainland China Australia Other countries
0807
0
5000
10000
15000
20000
25000
Employees by business segment
Head office Special steel Iron ore mining Property Dah Chong Hong CITIC 1616 Others
0807
16,000
14,000
12,000
10,000
4,000
2,000
8,000
6,000
0
5000
10000
15000
20000
69CITIC Pacific Annual Report 2008
Human Resources ManagementCITIC Pacific recognises and respects each individual’s
rights and adopts equal rights policies giving equal
opportunities to all appropriately qualified
candidates. The Group strives to be consistent and
fair in administering its human resources practices
to the mutual benefit of its employees and the Group.
CITIC Pacific upholds an extremely high standard of
business ethics and expects a similarly high level of
personal conduct from its employees. Every employee
is required to adhere to the Group’s Code of Conduct
which covers the required professional and technical
standard. It is the responsibility of all business unit
heads to disseminate the Group’s requirements to the
people concerned. Any violation or non-compliance
with the Code is subject to an established disciplinary
procedure. To ensure the proper enforcement of the
Code of Conduct Policy, the Group requires all
business units to report the compliance status of the
Policy on a bi-annual basis.
Employee CompensationCITIC Pacific aims to drive business results by
implementing performance-related pay schemes.
This also helps ensure alignment of employee and
shareholders’ interests. Employee’s cash remuneration
typically comprises a base salary and a discretionary
bonus which is based on a combination of the
Company’s results and the individual’s performance.
This variable pay policy allows the top-performers
adequately rewarded and under-performers properly
addressed. The senior management of the Group
receives a substantially higher portion of their
remuneration in performance related bonus, reflecting
their contribution to the business and the Group’s
financial performance.
Remuneration Committee The Remuneration Committee, established in August
2003, comprises three Non-Executive Directors, two
of whom are Independent Non-Executive Directors.
The Committee is chaired by Mr. Norman Ho and
meets at least once a year.
The principal role of the committee is to exercise the
powers of the Board to determine and review the
remuneration packages of individual executive
directors and key executives. This includes salaries,
bonuses, benefits in kind and the terms on which
they participate in any share option or other plans
considering factors such as salaries paid by comparable
companies. The committee also takes into account the
time commitment and responsibilities of the directors
and key executives and the employment conditions
elsewhere in the group. A key focus is the desirability
of performance-based remuneration to align
management incentives with shareholder interests.
Details of the CITIC Pacific Share Incentive Plan 2000
and the granting of options are reported on pages 91
to 93. Given the difficulties faced by the Company and
the resulting performance in 2008 total remuneration
paid to directors was substantially reduced to
HK$26.59 million (2007: 294.07 million). Further
information on Directors’ Emoluments can be found
on page 131.
70 CITIC Pacific Annual Report 2008
HUMAN RESOURCES
Retirement BenefitsFor Hong Kong employees, the Group has setup the
CITIC Group Mandatory Provident Fund Scheme
(‘MPF Scheme’). Employees are offered the option to
enrol in one of the three MPF Master Trust Schemes
under the CITIC Group MPF Scheme. The three
master trust schemes are Hang Seng MPF SuperTrust
Plus, Fidelity Retirement Master Trust and RCM MPF
Plan which was introduced in February 2008. All
these master trust schemes are administered in
accordance with the terms and provisions of respective
trust deed and are subject to the Mandatory Provident
Fund Schemes Ordinance.
The CITIC Group Retirement Plan (‘ORSO Plan’)
which was previously the primary retirement plan
of Hong Kong employees was replaced by the CITIC
Group Mandatory Provident Fund Scheme (‘MPF
Scheme’) in August 2003. All new contributions are
made to the MPF Scheme and the ORSO Plan is now
a closed fund.
Employees of the Group’s subsidiaries in mainland
China and other locations are required to participate
in defined contribution retirement schemes
administered and operated by the respective local
authorities and contributions are made according to
the local mandatory requirements.
Training & DevelopmentCITIC Pacific is committed to providing a healthy
organisational environment that is conducive to each
individual’s development. Employees are encouraged
to commit to continuous improvement by initiating
their own self-development plan with financial
sponsorship from the Group. Seminars, courses by
professional institutions and in-house training are
also organised regularly to help employees improve
performance and prepare for future development.
Where applicable, the Group arranges public
institutions to conduct customised talks on specific
subjects such as new legislative issues, work place
safety and updates on new technology.
With the continuing growth in cross-border business
activities between Hong Kong and the mainland, the
Group encourages and promotes business integration,
knowledge sharing and skills transfer between staff in
the two territories.
CITIC Pacific fully supports investing in the training
and development of our younger generations. The
Group has implemented various management trainee
and apprentice training programs. It also provides
training opportunities to young school leavers and
college students by participating in the Youth Pre-
employment Training Programme held by Hong Kong
Labour Department and internship programmes of
universities.
71CITIC Pacific Annual Report 2008
In the Community
CITIC Pacific is proud to be a socially-responsible
organisation, and as such is committed to
contributing to the community by supporting and
sponsoring different kind of activities, such as
charitable work, promotion of education, environment
protection, sports, culture and the arts in Hong Kong,
mainland China and overseas. In 2006, the Group
became one of the first corporations to support the
Wage Protection Movement for cleaning workers
and security guards. CITIC Pacific has been a ‘Caring
Company’ since 2007 under the scheme set up by the
Hong Kong Council of Social Service.
CITIC Pacific and its subsidiary companies are long-
term supporters of the Community Chest of Hong
Kong by making donations and participating in their
campaigns and fund raising activities. The Group has
also continued to be the sole sponsor of a performance
of Hong Kong Arts Festival. In 2008, to provide
financial assistance to the victims of Sichuan
earthquake, the Group and its employees donated
generously to the relief fund.
During the year, CITIC Pacific and its subsidiaries have
fully supported the territory-wide anti-drug campaign
organised by the Hong Kong Government and the
Action Committee Against Narcotics. To help
promote the campaign, the Eastern Tunnel and
Western Tunnel companies provided advertising walls
and bill board. Besides supporting the ‘Youth Pre-
employment Training Programme’ the Group also
offered workplace attachment and on-the-job training
places under the ‘Youth Work Experience and
Training Scheme’ run by Hong Kong Labour
Department. The aim of these placements is to
support the ‘Path Builders’ initiative which aims to
tackle drug and other youth problems at grassroots
level by fostering a caring culture for young people.
The Group has also worked with the Hong Kong
Federation of Youths Group to provide a 40-hour
pre-employment training course for selected trainees.
72 CITIC Pacific Annual Report 2008
Corporate Governance
Corporate Governance PracticesCITIC Pacific is committed to ensuring high standards
of corporate governance. The Board believes that good
corporate governance practices are important for
maintaining and promoting investor confidence.
During the year, the Company faced the issues
associated with the leveraged foreign exchange
contracts entered into by the Group. Following this
incident, the Board took actions to improve the
financial risk management function and examine
other corporate controls of the Group. The Board will
continue to review its corporate governance practices
to meet the latest local and international standards.
Throughout the year of 2008, CITIC Pacific has
complied with all Code Provisions in the Code
of Corporate Governance Practices (‘the Code’)
contained in Appendix 14 of the Rules Governing the
Listing of Securities on the Stock Exchange of Hong
Kong Limited.
Directors’ Securities TransactionsThe Company has adopted the Model Code for
Securities Transactions by Directors of Listed
Companies (‘the Model Code’) contained in
Appendix 10 of the Listing Rules. All Directors have
fully complied with the required standard set out in
the Model Code throughout the year of 2008.
Board of DirectorsAfter the appointment of Messrs Zhang Jijing and
Ju Weimin as directors of the Company, the Board
comprises ten executive and nine non-executive
directors of whom four are independent (the
biographies of the directors, together with
information about the relationships among them,
are set out on pages 80 to 82). Non-executive directors
are more than 47% of the Board and independent
non-executive directors are 21%. The reasons why
five non-executive directors are not independent
(as defined by the Stock Exchange) are that one is
the President of a shareholder having an interest of
over 1% stake in the Company, one does professional
work for the Company and the other three are
directors of CITIC Group.
Under Article 104(A) of the Company’s Articles
of Association, every director, including the
non-executive directors, shall be subject to retirement
by rotation at least once every three years.
The Board determines the overall strategies, monitors
and controls operating and financial performance
and sets appropriate policies to manage risks in
pursuit of the Group’s strategic objectives. Day-to-day
management of the Group’s businesses is delegated
to the executive director or officer in charge of each
division. Matters reserved for the Board are those
affecting the Group’s overall strategic policies,
finances and shareholders including financial
statements, dividend policy, significant changes in
accounting policy, material contracts and major
investments. All Board members have separate and
independent access to the Group’s senior management
in order to fulfil their duties. They also have full and
timely access to relevant information about the Group
and are kept abreast of the conduct, business activities
and development of the Group. Independent
professional advice can be sought at the Group’s
expense upon their request.
(This section was adopted at the board meeting of the Company held on 25 March 2009 for approving 2008 final results. Information in this section does not reflect the changes to the board composition which took effect on 8 April 2009.)
73CITIC Pacific Annual Report 2008
To implement the strategies and plans adopted by the
Board effectively, an executive committee of selected
executive directors and senior managers meets
monthly to review the performance of the businesses
of the Group, co-ordinate overall resources and make
financial and operational decisions.
There is also a finance committee of selected executive
directors to review and establish or renew financial
and credit facilities and undertake financial and
credit transactions that rank, where they constitute
obligations, pari passu with the Company’s other
unsecured obligations.
Chairman and Chief Executive OfficerThe Group has appointed a Chairman, Mr Larry Yung
and a Managing Director, Mr Henry Fan, who is the
Chief Executive Officer described in Appendix 14 of
the Listing Rules. The roles of the Chairman and the
Managing Director are segregated. The primary role
of the Chairman is to provide leadership for the Board
and to ensure that it works effectively in discharging
its responsibilities. The Managing Director is
responsible for the day-to-day management of
the Group’s business. Their respective roles and
responsibilities are set out in writing which has been
approved and adopted by the Board.
The Board meets regularly to review the financial
and operating performance of the Group and other
business units, and approve future strategy. Four
regular board meetings were held in 2008. Because
of the issues associated with the leveraged foreign
exchange contracts entered into by the Group, 5
special board meetings were held during the year.
Individual attendance of each director at the Board
meetings during 2008 is set out below:
Attendance / Number of Board Meetings
Directors Regular Special
Executive DirectorsMr Larry Yung Chi Kin – Chairman 4/4 5/5
Mr Henry Fan Hung Ling – Managing Director 4/4 5/5
Mr Peter Lee Chung Hing 4/4 5/5
Mr Carl Yung Ming Jie 4/4 5/5
Mr Vernon Francis Moore 4/4 5/5
Mr Li Shilin 1/4 0/5
Mr Liu Jifu 4/4 3/5
Mr Milton Law Ming To 4/4 5/5
Mr Wang Ande 4/4 5/5
Mr Kwok Man Leung (appointed on 1 April 2008) 3/3 5/5
Mr Leslie Chang Li Hsien (resigned on 20 October 2008) 3/3 2/2
Mr Chau Chi Yin (resigned on 20 October 2008) 3/3 2/2
Independent Non-executive DirectorsMr Hamilton Ho Hau Hay 4/4 5/5
Mr Alexander Reid Hamilton 3/4 4/5
Mr Hansen Loh Chung Hon 4/4 5/5
Mr Norman Ho Hau Chong 4/4 4/5
Non-executive DirectorsMr Willie Chang 4/4 5/5
Mr André Desmarais (Two of the regular meetings and three of the special meetings were attended by his alternate) 4/4 5/5
Mr Chang Zhenming 1/4 1/5
74 CITIC Pacific Annual Report 2008
CORPORATE GOVERNANCE
Details of CITIC Pacific’s remuneration policies are
set out in the Human Resources section on page 69.
Directors’ emoluments and retirement benefits are
disclosed on pages 131 to 132. Details of the CITIC
Pacific Share Incentive Plan 2000 and the granting of
options are disclosed on pages 91 to 93.
Nomination of DirectorsThere is no nomination committee of the Board.
During 2008, Mr Kwok Man Leung was appointed
as a director by the Board. He was re-elected by
shareholders at the first annual general meeting after
his appointment. Messrs Zhang Jijing and Ju Weimin
were appointed as non-executive directors by the
Board with effect from 1 April 2009.
Remuneration CommitteeThe Remuneration Committee was established by
the Board in August 2003. The full terms of reference
can be found in the Group’s website (http://www.
citicpacific.com/eng/about/governance_remun.html).
Responsibility
The principal role of the Remuneration Committee
is to exercise the powers of the Board to determine
and review the remuneration packages of individual
executive directors and senior management, including
salaries, bonuses, benefits in kind and the terms on
which they participate in any share option and other
plans considering factors such as salaries paid by
comparable companies, time commitment and
responsibilities of the directors and senior
management, employment conditions elsewhere in
the Group and desirability of performance-based
remuneration so as to align management incentives
with shareholder interests.
Membership and Attendance
Attendance / Members Number of Meetings
Independent Non-executive DirectorsMr Norman Ho Hau Chong (Chairman) 2/2
Mr Alexander Reid Hamilton 2/2
Non-executive DirectorMr Willie Chang 2/2
Work Done
The Remuneration Committee reviewed the
remuneration policies applicable to and approved the
salaries and bonuses of the executive directors and
senior management. No executive director has taken
part in any discussion about his own remuneration.
75CITIC Pacific Annual Report 2008
Audit CommitteeThe Board established an Audit Committee in 1995.
The Audit Committee’s terms of reference can be
found in the Group’s website (http://www.citicpacific.
com/eng/about/governance_audit.html).
Responsibility
The Audit Committee assists the Board in meeting its
responsibilities for ensuring an adequate system of
internal control and compliance, and in meeting its
external financial reporting obligations.
Membership and Attendance
The Audit Committee members possess diversified
industry experience and the Chairman has
appropriate professional qualifications and experience
in accounting matters. The Audit Committee meets
regularly four times each year, together with the Group
Finance Director, and auditors, both internal and
external. Other executive directors do not attend the
meeting unless by invitation. Because of the issues
associated with the leveraged foreign exchange
contracts entered into by the Group, the Audit
Committee held five special meetings.
Attendance / Number of Meetings
Members Regular Special
Independent Non-executive DirectorsMr Alexander Reid Hamilton (Chairman) 4/4 5/5
Mr Hansen Loh Chung Hon 4/4 5/5
Non-executive DirectorMr Willie Chang 4/4 5/5
Work Done
The Audit Committee considered the external
auditors’ projected audit fees; discussed with the
external auditors their independence and the nature
and scope of the audit; reviewed the interim and
annual financial statements, particularly judgmental
areas, before submission to the Board; reviewed the
internal audit programme, findings and management’s
response; and reviewed the Group’s adherence to the
Code Provisions in the Code. The Audit Committee
recommended the Board adopt the interim and
annual reports for 2008. The Audit Committee
undertook an internal investigation of the entering
into of the leveraged foreign exchange contracts
and reported its findings to the Board. The
Audit Committee also commissioned
PricewaterhouseCoopers (‘PwC’) to undertake
reviews of the Company’s financial risk management
and of its entity-level corporate controls and to make
recommendations to improve the Group’s internal
controls.
Pursuant to the revised Code Provisions which
became effective on 1 January 2009, the Audit
Committee’s oversight function in its annual
review of the system of internal control will include
consideration of the adequacy of resources,
qualifications and experience of staff of the
Company’s accounting and financial reporting
function, including their training programmes
and budget. The terms of reference of the Audit
Committee are under review and will be revised
appropriately.
76 CITIC Pacific Annual Report 2008
CORPORATE GOVERNANCE
Asset and Liability Management CommitteeIn October 2008, the Board established an Asset and
Liability Management Committee accountable to the
Board to review monthly the financial position of the
Company and to be responsible for establishing its
financial risk management policy. Its members
consist of the Group Finance Director who chairs
the Committee and the executives from various
departments of the Company. Three formal meetings
have been held. The Committee is in its formative
stage but has established policies for approved
transaction types and counterparty risk and has set
up a framework for monitoring interest rate risk,
foreign exchange risk and commodity price risk
and exposures.
The terms of reference of the Asset and Liability
Management Committee are as follows:
a) reviewing regularly the asset and liability balance
of the Company in aggregate, and at subsidiary /
affiliate level;
b) setting limits on exposure at group, subsidiary or
business unit level in relation to:
i) assets and liability mismatches;
ii) counter-parties;
iii) currencies;
iv) interest rates;
v) commitments and contingent liabilities;
c) reviewing and approving financing plans;
d) approving the use of new financial products; and
e) establishing hedging policies.
Committee to deal with the Group’s Leveraged Foreign Exchange ContractsThe Board established a Committee to deal with the
Group’s Leveraged Foreign Exchange Contracts in
November 2008. The Committee is empowered to
receive recommendations from internal and external
parties as to how to improve the Group’s internal
management and risk controls, monitor the Group’s
ongoing and future leveraged foreign exchange
contracts and negotiate terms of the novation
contracts with the relevant counterparties. Mr Chang
Zhenming, a Non-executive Director of the Company
and the Vice Chairman and President of CITIC Group
is the chairman of the Committee. Other members
include the Group Finance Director, an Executive
Director and two Non-executive Directors of the
Company.
Auditor’s RemunerationPwC has been CITIC Pacific’s independent auditor
since 1989. The audit engagement partner is changed
every several years to ensure independence and the
current audit partner was first appointed for the 2006
accounts. During the year, the fees estimated for
PwC’s statutory audit amounted to approximately
HK$15 million (2007: HK$10 million). In addition,
approximately HK$10 million (2007: HK$2 million)
was charged for other services, which included mainly
special audits, review of treasury internal control,
review of internal controls in relation to financial
reporting, agreed upon procedures and other
reporting in respect of announcements and circulars
in relation to the leveraged foreign exchange
77CITIC Pacific Annual Report 2008
contracts and issuance of convertible bond in 2008
(approximately HK$3 million), review of the half year
financial statements and tax compliance. The cost of
recurring audit services to subsidiaries performed by
other auditors amounted to approximately HK$22
million (2007: HK$16 million) and the fees for other
services were approximately HK$22 million (2007:
HK$31 million).
Internal ControlsThe Board has overall responsibility for maintaining
a sound and effective system of internal control.
Internal control is designed to provide reasonable,
but not absolute, assurance of the effectiveness and
efficiency of operations, safeguarding of assets,
maintenance of proper accounting records, reliability
of financial information, and compliance with laws
and regulations, which is a process to manage rather
than eliminate the risk of failure to achieve the
business objectives of the Group.
Following the substantial foreign exchange exposures
incurred during the year, the Board took action to
improve the financial risk management function and
examine other corporate controls of the Group. A
major on-going objective is restructuring and
strengthening the resources of the finance and
financial control teams, including recruitment of
seasoned professionals with a view to identifying,
reporting and managing the Group’s treasury
activities, foreign exchange, interest rates and other
financial risks on a continual and structured basis.
Major initiatives taken encompassed the following:
1. Established the Asset and Liability Management
Committee to directly oversee financial risk
management and related internal control areas,
and a separate Committee to specifically address
issues in relation to the leveraged foreign exchange
contracts;
2. Appointed PwC to undertake reviews of the
Group’s financial risk management and entity-level
corporate controls to which the head of Group
Internal Audit was assigned to participate and
assist;
3. Engaged a highly experienced financial consultant
to supervise various projects on internal control
improvements, including implementation of the
recommendations made by PwC;
4. Appointed a board member with extensive
experience to be the Group Finance Director;
5. Launched a programme (which is continuing)
to formalize and enhance the Group’s corporate
controls, policy and procedures, including
treasury and financial risk management policies as
part of the internal control improvement project.
Apart from the above special reviews carried out
during the year, the Board has also reviewed the
effectiveness of the Group’s internal control system
in accordance with the requirement of the Code
on Corporate Governance Practices contained in
Appendix 14 of the Listing Rules. Such annual
review of internal control system was conducted by
considering the work performed by the executive
management as well as Group Internal Audit, details
of which are set out in the following paragraphs.
78 CITIC Pacific Annual Report 2008
CORPORATE GOVERNANCE
The executive management of major subsidiaries and
operational business units are required to conduct
a self-assessment of their material controls and risk
management functions by reference to the COSO
(The Committee of Sponsoring Organisations of the
Treadway Commission) internal control framework,
with results of the self-assessments consolidated and
reported to the Audit Committee and the Board on an
annual basis. During the year, no material exceptions
were required to be brought to the Board’s attention as
a result of these self-assessments. These businesses
have also provided a letter of representation to the
Board that their accounts are prepared in accordance
with the Group’s accounting policies, and their earlier
internal control self-assessment remains correct. The
process of these self-assessments will be further
enhanced and Group Internal Audit will perform
regular validations of management’s assessments.
Group Internal Audit conducts independent internal
control evaluations of selected business units and
functions according to its annual work plan. The
Audit Committee reviews major findings reported
by Group Internal Audit at the Audit Committee
meetings and reports to the Board on such reviews
where appropriate.
Internal AuditReporting to the Audit Committee, Group Internal
Audit assists in the Board’s oversight function by
carrying out independent internal audits designed to
provide assurance as to the effectiveness of internal
controls of the Group’s operations, including its risk
management activities. Focusing on major business
units at the subsidiary level, the annual internal audit
plan for the year was formulated and prioritized using
a risk assessment methodology. The Audit Committee
reviews and endorses the internal audit plan annually,
pursuant to which individual internal audit
assignments are carried out. Under the Internal Audit
Charter, Group Internal Audit has unrestricted access
to information, properties and all levels of
management to facilitate the execution of the internal
audit work. Group Internal Audit issues detailed
reports following completion of each audit visit that
requires management’s corrective action, and submits
summary reports for the Audit Committee’s review
and discussion at the Audit Committee meetings.
Group Internal Audit also initiates a quarterly follow-
up review to determine the extent of the completion of
the recommended actions taken by management.
Major outstanding issues are discussed at the
Audit Committee meetings until they have been
satisfactorily resolved.
In response to the development of the Group’s
operations and the recent recommendations made by
PwC, the Group Internal Audit function is undergoing
a transformation process whereby an enhanced scope
of risk-based internal audit services will be provided
to the Audit Committee and the Board.
CodesTo ensure the highest standard of integrity in our
businesses, the Group adopted a Code of Conduct
defining the ethical standards expected of all
employees, and the Group’s non-discriminatory
employment practices. Induction briefing of the Code
of Conduct is held for all employees and the Audit
Committee receives a report on the operation and
compliance of the Code of Conduct every year.
The Group has followed the guide to good
employment practices issued by the Employers’
Federation of Hong Kong to promote good and
responsible employment standards.
79CITIC Pacific Annual Report 2008
Notifiable Transactions, Connected Transactions, Annual Reports and Interim ReportsDuring 2008, CITIC Pacific has issued press
announcements and circulars in respect of a number
of notifiable transactions and connected transactions
which can be viewed on the Group’s website
(http://www.citicpacific.com/eng/inv/announce/
announce_index.php).
The annual and interim reports of the Company can
also be viewed on the Group’s website.
Communication with ShareholdersThe Company’s Annual General Meeting (‘AGM’)
is one of the principal channels of communication
with its shareholders. It provides an opportunity for
shareholders to ask questions about the Company’s
performance. Separate resolutions were proposed for
each substantially separate issue at the AGM.
The Company’s Articles of Association allow voting
by poll on resolutions at shareholders’ meetings and
contain the procedures for the poll voting. Details
of demanding poll voting and the poll procedures
have been included in all circulars in relation to
shareholders’ meetings and explained during the
proceedings of shareholders’ meetings. Poll voting
was conducted at all shareholders’ meetings during
2008 and the poll results have been posted on the
websites of the Stock Exchange and the Company on
the same day of the shareholders’ meeting.
Fair Disclosure and Investor RelationsCITIC Pacific uses its best endeavours to distribute
material information about the Group to all interested
parties as widely as possible. When announcements
are made through the Hong Kong Stock Exchange
the same information will be available on the
Company’s website.
CITIC Pacific recognises its responsibility to explain
its activities to those with a legitimate interest and to
respond to their questions. Investors are regularly
received and visited to explain the Group’s businesses.
In addition, questions received from the general
public and individual shareholders were answered
promptly. In all cases great care has been taken to
ensure that no price sensitive information is disclosed
selectively.
Information about CITIC Pacific can be found on the
Group’s website including descriptions of each
business and the Annual Reports for last ten years.
Financial ReportingThe Directors acknowledge their responsibility for
preparing accounts which give a true and fair view of
the Group’s affairs and of its results and cash flows for
the period in accordance with Hong Kong Financial
Reporting Standards. The Directors endeavour to
ensure a balanced, clear and understandable
assessment of the Group’s performance, position
and prospects in financial reporting. Accordingly,
appropriate accounting policies are selected and
applied consistently and judgments and estimates
made are prudent and reasonable. The adoption of
new or amended accounting standards that became
effective during the year has not resulted in
substantial changes to the Group’s accounting policies
and has no significant impact on the results reported
for the year ended 31 December 2008, the details of
which are disclosed on page 109.
The responsibilities of the external auditors with
respect to financial reporting are set out in the
Independent Auditor’s Report on page 177.
80 CITIC Pacific Annual Report 2008
Directors and Senior Managers
Executive DirectorsLarry Yung Chi Kin (Chairman), aged 67, a Director
since 1990, is the Vice Chairman and Managing
Director of CITIC Hong Kong (Holdings) Limited
(‘CITIC HK’) and an Executive Director of CITIC
Group. He worked for 14 years with the Ministry of
Electric Power in the People’s Republic of China
(‘PRC’) before coming to Hong Kong in 1978, and had
extensive management experience before establishing
CITIC HK in 1987.
Henry Fan Hung Ling (Managing Director), aged 60,
a Director since 1990, is a Deputy Chairman of Cathay
Pacific Airways Limited (‘Cathay’) and a Deputy
Managing Director of CITIC HK. Before joining CITIC
HK in 1987, Mr Fan held senior management positions
with a number of corporations and also practised law
as a barrister.
Peter Lee Chung Hing (Deputy Managing Director),
aged 55, is a director of CITIC Pacific Mining
Management Pty Ltd (‘CITIC Pacific Mining’) and
several Group companies involved in special steel
projects. Before joining CITIC HK in 1988, Mr Lee was
with major banking and shipping groups in Hong
Kong. He joined CITIC Pacific Limited (‘CITIC Pacific’)
in 1990.
Carl Yung Ming Jie (Deputy Managing Director),
aged 40, a Director since 2000, is the Chairman of
Shanghai CITIC Square Co., Ltd. and Shanghai New
Westgate Garden Property Co., Ltd. He is also a
director of CITIC Pacific China Holdings Limited
(‘CP China’) and other Group companies concerned
with property, infrastructure and special steel projects
in the PRC. He joined CITIC Pacific in 1993. He is the
son of Mr Larry Yung Chi Kin.
Vernon Francis Moore (Group Finance Director),
aged 62, a Director since 1990, is a director of CITIC
Pacific Mining, the Chairman of New Hong Kong
Tunnel Company Limited (‘NHKTC’) and Western
Harbour Tunnel Company Limited (‘WHT’) and a
non-executive director of Cathay and CLP Holdings
Limited (‘CLP Holdings’). Mr Moore joined CITIC HK
in 1987 after holding senior management positions
with a number of financial institutions and acted as an
executive director of CITIC HK until August 2007.
Li Shilin (Executive Director), aged 59, a Director
since 2000, is an Executive Director and a Vice
President of CITIC Group. He is also the Chairman
of CITIC Guoan Group, CITIC Guoan Information
Industry Co., Ltd. and CITIC Offshore Helicopter
Co., Ltd.
Liu Jifu (Executive Director), aged 65, a Director since
2001, is a director of CITIC HK and CITIC International
Financial Holdings Limited. Before joining CITIC HK
in 2000, Mr Liu worked with the Financial and
Economics Research Institute in the China Academy
of Social Sciences for 5 years. Formerly, he was an
Executive Director of China Everbright Group
Limited, the Chairman of China Everbright Travel Inc
and China PINGHE Import & Export Co., Ltd.
Milton Law Ming To (Executive Director), aged 45,
a Director since 2006, is a director of NHKTC, WHT,
Hong Kong Transport, Logistics and Management
Company Limited, Daye Special Steel Co., Ltd.
(‘Daye Special Steel’), CITIC Pacific Mining and other
Group companies concerned with infrastructure,
environmental, special steel, iron ore mining and
property projects. Before joining CITIC Pacific in 1992,
he worked in the banking industry.
Wang Ande (Executive Director), aged 59, a Director
since 2006, is the Managing Director of CP China and
a director of other Group companies concerned with
property projects in the PRC. Before joining CITIC
Pacific in 2003, he served in the Shanghai Municipal
Government and Pudong New Area Government
responsible for lands and property development of the city.
(Information in this section reflects the position as at the date of announcing 2008 final results. Subsequently on 8 April 2009, Mr Larry Yung Chi Kin and Mr Henry Fan Hung Ling resigned from the Board; Mr Chang Zhenming was appointed as Chairman and Managing Director of the Company.)
81CITIC Pacific Annual Report 2008
Kwok Man Leung (Executive Director), aged 40,
a Director since 2008, is a director of NHKTC and
other Group companies concerned with special steel
and environmental projects and a non-executive
director of CITIC 1616 Holdings Limited (‘CITIC 1616’)
and Dah Chong Hong Holdings Limited (‘DCH
Holdings’). He joined CITIC Pacific in 1993 after
gaining experience in sales and business development
with a major Hong Kong listed company.
Non-Executive DirectorsWillie Chang, aged 65, a Director since 1987, is a
member of both Audit Committee and Remuneration
Committee of the Company. Mr Chang is the sole
proprietor of Willie Chang & Co., Solicitors, with over
39 years’ experience in legal practice, including as a
partner of Johnson, Stokes and Master.
Hamilton Ho Hau Hay, aged 58, a Director since
1992, is a non-executive director of DCH Holdings
and King Fook Holdings Limited. Mr Ho is also an
independent non-executive director of New World
Development Company Limited, an executive director
of Honorway Investments Limited (‘Honorway’) and
Tak Hung (Holding) Company Limited (‘Tak Hung’).
He is the brother of Mr Norman Ho Hau Chong.*
Alexander Reid Hamilton, aged 67, a Director since 1994,
is the Chairman of the Audit Committee and a
member of the Remuneration Committee of the
Company. Mr Hamilton was a partner of
PricewaterhouseCoopers where he practised for
16 years. He is an independent non-executive director
of China COSCO Holdings Company Limited,
Shangri-La Asia Limited, Esprit Holdings Limited
and Octopus Cards Limited.*
Hansen Loh Chung Hon, aged 71, a Director since
1994, is a member of the Audit Committee of the
Company. Mr Loh is the Managing Director of Wyler
Textiles, Limited and an independent non-executive
director of CLP Holdings.*
Norman Ho Hau Chong, aged 53, a Director since
1994, is the Chairman of the Remuneration Committee
of the Company. Mr Ho is an Executive Director of
Honorway, Tak Hung, Miramar Hotel and Investment
Company, Limited and New World Mobile Holdings
Limited, a director of Hong Kong Ferry (Holdings)
Company Limited, Lee Hing Development Limited,
Shun Tak Holdings Limited, Starlight International
Holdings Limited and Taifook Securities Group
Limited. He is the brother of Mr Hamilton Ho Hau Hay.*
André Desmarais, aged 52, a Director since 1997, is
the President and Co-Chief Executive Officer of Power
Corporation of Canada. He is a Senior Advisor to the
International Advisory Council of China Association
for the Promotion of Industrial Development.
Chang Zhenming, aged 52, a Director since 2006,
is the Vice Chairman and President of CITIC Group,
the Vice Chairman of CITIC International Financial
Holdings Limited and China CITIC Bank Corporation
Limited. From March 2000 to June 2005, he was an
executive director of CITIC Pacific. He has over 20
years’ broad range of experience in banking, finance
and securities business. He was formerly the Vice
Chairman and President of China Construction Bank
Corporation.
Zhang Jijing, aged 53, a Director with effect from
1 April 2009, is a director, the assistant president and
the director-general of the Strategy and Planning
Department of CITIC Group. He is also an executive
director of CITIC Resources Holdings Limited, a
non-executive director of CITIC Securities Co., Ltd.
and China CITIC Bank Corporation Limited. Mr Zhang
has previously been the managing director of CITIC
Australia Group, a director and vice president of
CITIC Australia Pty. Ltd., and the deputy division
chief of the overseas investment department of China
International Trust and Investment Corporation.
He has over 23 years’ experience in corporate
management, industrial investment, business finance
and the aluminium industry.
82 CITIC Pacific Annual Report 2008
Directors anD senior Managers
Ju Weimin, aged 46, a Director with effect from
1 April 2009, is a director and the chief financial officer
of CITIC Group. He is also the chairman of CITIC Trust
Co. Ltd., a non-executive director of CITIC Securities Co.,
Ltd., China CITIC Bank Corporation Limited and Asia
Satellite Telecommunications Holdings Limited. He
has over 20 years’ experience in finance, investment
and corporate management.
Peter Kruyt (Alternate Director to Mr André
Desmarais), aged 53, an alternate director since 2003,
is Vice President of Power Corporation of Canada,
Chairman of Power Pacific Corporation Limited,
the Canada-China Business Council and Concordia
University and President and Chief Executive Officer of
Victoria Square Ventures Inc.
* Independent Non-executive Director
Senior ManagersStella Chan Chui Sheung (Company Secretary), aged
46, is a non-executive director of DCH Holdings and
CITIC 1616. Before joining CITIC HK in 1988 and CITIC
Pacific in 1990, she worked in the company secretarial
field. She has over 20 years of experience in the
company secretarial aspect.
Paul Lo Kai Sing (Director, Group Human Resources
and Administration), aged 53, joined CITIC Pacific
in January 2005. He has many years experience in
human resources management in a variety of
industries, including electronics manufacturing,
multinational trading conglomerates and integrated
multi-media services, and once served as the
General Manager, Group Human Resources and
Communications of Dah Chong Hong from 1997
to 2000.
Aaron Wong Ha Hang (Director, Property
Department), aged 50, is an Executive Director
of HK Resort, a director of NHKTC and other
Group companies concerned with property and
environmental projects. Before joining CITIC Pacific
in 1996, he worked for an international consulting
firm in the United Kingdom and in Hong Kong.
Cai Xinghai (Director, Industries), aged 64, is a
Deputy Managing Director of CITIC HK, the Chairman
of Daye Special Steel, the Vice Chairman of Jiangyin
Xingcheng Special Steel and Hubei Xin Yegang Steel
Co., Ltd. and a director of other Group companies
concerned with special steel projects. He is also the
chief representative of CITIC Pacific’s Wuxi Office.
He joined CITIC Pacific in 1994 and has extensive
experience in the management of special steel
manufacturing in mainland China.
Holly Chen Meng (Director, Group Investor
Relations), aged 42, joined CITIC Pacific in 2001. Prior
to that she had over 10 years experience working for
several major global investment banks, where she
obtained extensive experience in corporate finance
and corporate communications.
Wang Gongcheng (Director, Mineral Resources), aged
63, is a director of CITIC Pacific Mining. He joined
CITIC Pacific in 2006 and has extensive experience in
the management of mining corporations in Australia
and mainland China.
Kevin Kwan Kit Tong (Director, Financial Control),
aged 50, joined CITIC Pacific in January 2009. Before
joining CITIC Pacific, he was the Executive Director,
Chief Executive Officer and Group Controller of a
Hong Kong listed company in the semi conductor
industry. He has over 20 years experience in financial
management and has worked for CITIC Group
companies in Hong Kong and Australia as management
staff of Financial Control between 1992 to 1999.
83CITIC Pacific Annual Report 2008
The Directors have pleasure in presenting to shareholders their report for the year ended 31 December 2008.
Principal ActivitiesThe principal activity of the Company is to hold the subsidiaries, associates and joint venture through which its business
operations are carried out, employing staff and raising finance. Their major areas of operation are set out in the Business
Review on pages 6 to 43.
DividendsNo final dividend was recommended for the year ended 31 December 2008. An interim dividend of HK$0.30 per share was
paid on 26 September 2008. This represents a total distribution for the year of HK$658 million.
ReservesThe amounts and particulars of transfer to and from reserves during the year are set out in Note 28 to the financial statements.
DonationsDonations made by the Group during the year amounted to HK$17 million.
Fixed AssetsMovements of fixed assets are set out in the Financial Statements on pages 133 to 137.
Major Customers and SuppliersThe aggregate percentage of purchases from the Group’s five largest suppliers is less than 30%. The aggregate percentage of
sales to the Group’s five largest customers is less than 30%.
No directors, their associates or shareholders (which to the knowledge of the directors own more than 5% of the Company’s
share capital) were interested at any time in the year in the above suppliers or customers.
Subsidiary CompaniesThe names of the principal subsidiary companies, their principal places of operation, their countries of incorporation and
particulars of their issued share capital are set out in Note 44 to the financial statements.
Issue of Debt SecuritiesOn 1 June 2001, CITIC Pacific Finance (2001) Limited, a wholly owned subsidiary of the Company, issued and sold a
total of US$450 million principal amount of 7.625% guaranteed notes due 2011 (‘Guaranteed Notes’) for refinancing the
indebtedness of the Company and for general corporate purposes, to investors pursuant to the purchase agreements dated
24 May 2001 and 1 June 2001. All of the Guaranteed Notes remained outstanding at the end of the year.
On 26 October 2005, CITIC Pacific Finance (2005) Limited, a wholly owned subsidiary of the Company, issued and sold
JPY8.1 billion in aggregate principal amount of guaranteed floating rate notes due 2035 (‘JPY Notes’) to investors for general
corporate purposes pursuant to a subscription agreement dated 26 October 2005. The coupon and principal of the JPY Notes
was swapped into Hong Kong Dollar through cross currency swap and net proceeds equivalent to HK$400 million was
received. The JPY Notes holders have a one time right to put the JPY Notes to the issuer at 81.29% of the principal amount
together with accrued interest on 28 October 2015. All of the JPY Notes remained outstanding at the end of the year.
Save as aforesaid, neither the Company nor its subsidiary companies have issued any debt securities.
Directors’ Report
84 CITIC Pacific Annual Report 2008
Directors’ report
BorrowingsParticulars of borrowings of the Group are set out in Note 29 to the financial statements.
Issue of Convertible Bond and New SharesOn 12 November 2008, the Company entered into an agreement (‘the Agreement’) with CITIC Group, the largest shareholder
of the Company holding approximately 29% of the issued shares of the Company as at the date of the Agreement, in
connection with, inter alia, the issue by the Company of the Convertible Bond to CITIC Group with an aggregate principal
amount of HK$11.625 billion convertible into the Shares at an initial conversion price of HK$8.00 per share. An interest
coupon of 2% per annum would be payable from the time of issue of the Convertible Bond up to but excluding the date the
Convertible Bond was to be converted into shares of the Company.
The Agreement was approved by the shareholders of the Company on 19 December 2008. Completion took place on
24 December 2008 on which the Convertible Bond was issued and automatically fully converted into shares of the Company.
An aggregate of 1,453,125,000 shares of the Company at the price of HK$8.00 per share were allotted and issued on
conversion to certain subsidiaries of CITIC Group which, as a result, became the controlling shareholder of the Company
holding approximately 57.56% interest in the Company. The consideration for 1,453,125,000 shares of the Company (being
HK$11.625 billion) was paid as to HK$2.47 billion in cash with the remaining amount being set off against the amount
payable by the Company to CITIC Group in respect of the novation of certain AUD target redemption forward contracts
entered into by the Group. The cash received was to be used as general working capital for the Group.
DirectorsMr Kwok Man Leung was appointed as an executive director of the Company with effect from 1 April 2008 and Messrs Leslie
Chang Li Hsien and Chau Chi Yin resigned as directors with effect from 20 October 2008. Messrs Zhang Jijing and Ju Weimin
were appointed as non-executive directors of the Company with effect from 1 April 2009. Except for these changes, the
directors of the Company whose names and biographical details appear on pages 80 to 82 were the directors in office during
the whole of financial year ended 31 December 2008.
In accordance with Article 95 of the New Articles of Association of the Company, Messrs Zhang Jijing and Ju Weimin will
hold office only until the forthcoming Annual General Meeting and are then eligible for re-election. In addition, pursuant to
Article 104(A) of the New Articles of Association of the Company, Messrs Larry Yung Chi Kin, Peter Lee Chung Hing, Milton
Law Ming To, Wang Ande, Alexander Reid Hamilton and Hansen Loh Chung Hon shall retire by rotation in the forthcoming
Annual General Meeting and all, being eligible, offer themselves for re-election.
The Company has received from each independent non-executive director an annual confirmation of his independence
pursuant to the independence guidelines under the Rules Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited (‘Listing Rules’) and that the Company still considers such directors to be independent.
Management ContractThe Company entered into a management agreement with CITIC Hong Kong (Holdings) Limited (‘CITIC HK’) on 11 April
1991 but with retrospective effect from 1 March 1990 in which CITIC HK agreed to provide management services to the
Company and its subsidiary companies for a management fee calculated on a cost basis to CITIC HK payable quarterly in
arrears. The management agreement is terminable by two months’ notice by either party. Messrs Larry Yung Chi Kin, Henry
Fan Hung Ling and Liu Jifu had indirect interests in the management agreement as they are directors of CITIC HK. A copy
of the management agreement will be available for inspection at the Annual General Meeting of the Company to be held on
25 May 2009.
85CITIC Pacific Annual Report 2008
Directors’ Interests in Contracts of SignificanceNone of the directors of the Company has or at any time during the year had, an interest which is or was material, either
directly or indirectly, in any contract with the Company, any of its subsidiary companies, its holding company or any of its
fellow subsidiary companies, which was significant in relation to the business of the Company, and which was subsisting at
the end of the year or which had subsisted at any time during the year.
Competing InterestsMr Zhang Jijing is an executive director of CITIC Resources Holdings Limited, a company listed on the main board of the
Hong Kong Stock Exchange. CITIC Resources Holdings Limited is a diversified energy and natural resources investment
holding company and through its subsidiaries has interests in aluminium smelting, coal, import and export of commodities,
manganese mining and processing and oil exploration, development and production. Further details of its nature, scope
and size of its business as well as its management could be found in the latest annual report of CITIC Resources Holdings
Limited. In the event that there are transactions between CITIC Resources Holdings Limited and CITIC Pacific Limited,
Mr Zhang will abstain from voting. Save as disclosed above, Mr Zhang is not directly or indirectly interested in any business
that constitutes or may constitute a competing business of the Company.
Connected TransactionsConnected transactions disclosed in accordance with the Listing Rules are as follows:
1. On 16 May 2008, Jiangyin Xingcheng Special Steel Works Co., Ltd. (‘Xingcheng’, a 79% owned subsidiary of the
Company), Ipson Investments Limited (‘Ipson’, a wholly owned subsidiary of the Company) and Perfect Future International
Limited (‘Perfect Future’) entered into a joint venture agreement for the formation of Jiangsu Fasten Zhangyuan Metalwork
Co., Ltd. (‘Jiangsu Metalwork’, subsequently renamed as Jiangyin Xingcheng Metalwork Co., Ltd.) which is engaged in the
development and production of alloy and metal hardware for construction, instrument and daily use. Jiangsu Metalwork
is owned as to 51% by Xingcheng, 39.2% by Ipson and 9.8% by Perfect Future. The total consideration paid by the Group
(i.e. Xingcheng and Ipson) for the 90.2% aggregate interest in Jiangsu Metalwork was RMB 126,036,460. The registered
capital and the total investment of Jiangsu Metalwork are US$12,000,000 and US$29,800,000 respectively.
Perfect Future is a connected person of the Company as it is a substantial shareholder of certain subsidiaries of the Company
engaging in steel manufacturing business and is also an associate of a director of certain subsidiaries of the Company.
2. On 2 July 2008, 湛江市駿凱汽車技術服務有限公司 (Zhanjiang Junkai Motors Technology and Service Limited)
(‘Zhanjiang Junkai’), a wholly owned subsidiary of DCH Holdings, entered into an enterprise purchase agreement with雲南中凱集團有限公司(Yunnan Zhongkai Holdings Limited) (‘Yunnan Zhongkai’), Ms Qu Guijing and雲南聯致汽車服務有限公司 (Yunnan Lianzhi Motors Service Limited) (‘Yunnan Lianzhi’) under which Zhanjiang Junkai agreed to purchase, and
Yunnan Zhongkai agreed to sell, (i) the 80% equity interest in the registered capital of Yunnan Lianzhi held by Yunnan
Zhongkai at the consideration of RMB 5,477,374.37 which was calculated with reference to the net assets of Yunnan Lianzhi
as at 30 April 2008 subject to adjustment when the financial statements of Yunnan Lianzhi as at 30 June 2008 were finalised;
and (ii) the benefit of the amount payable by Yunnan Lianzhi to Yunnan Zhongkai as a result of the advances made by
Yunnan Zhongkai for Yunnan Lianzhi as at 30 June 2008 at book value. As a reference, the said amount payable as at 30 April
2008 was RMB 9,476,548.07. The consideration of RMB 5,477,374.37 was subsequently adjusted to RMB 5,406,677.28 with
reference to the net assets of Yunnan Lianzhi as at 30 June 2008 whereas the amount payable by Yunnan Lianzhi to Yunnan
Zhongkai as at 30 June 2008 was RMB 7,576,548.07. Yunnan Lianzhi is engaged in motor vehicle dealing. The aforesaid
acquisition was completed during the year. Since completion, Yunnan Lianzhi had been accounted for as a non-wholly
owned subsidiary of DCH Holdings.
Yunnan Zhongkai is a connected person of DCH Holdings and the Company as it is (i) a substantial shareholder of certain
subsidiaries of DCH Holdings; and (ii) an associate of a director of various subsidiaries of DCH Holdings engaged in motor
vehicle dealing. Ms Qu Guijing is also a connected person of DCH Holdings and the Company by virtue of her being an
associate of the said director. The abovesaid acquisition constituted a connected transaction of DCH Holdings and the
Company under the Listing Rules.
86 CITIC Pacific Annual Report 2008
Directors’ report
3. On 26 August 2008, DCH Holdings and its wholly owned subsidiary Delight Star Enterprises Limited (‘DSE’) entered
into a sale and purchase agreement (‘the 4S Acquisition Agreement’) with Denker Investment Limited (‘DIL’) and Mr Mak
Hing Lung, pursuant to which DSE (or its nominee) agreed to acquire from DIL 49% and 50% equity interests in Strong Step
Holdings Limited and Star Partner Holdings Limited (collectively ‘the 4S Target Companies’) respectively, and the related
shareholders’ loans for a total consideration of HK$143,716,000. The 4S Target Companies are DIL’s holding vehicles for its
interests in the businesses relating to the provision of vehicle sales, spare parts, maintenance services and customer survey
services in respect of the ‘FAW Toyota’ brand in Guangzhou and Foshan, the PRC and ‘Lexus’ brand in Guangzhou, the PRC.
The abovesaid acquisition was completed during the year. After completion, the existing guarantees in favour of the 4S Target
Companies were to be replaced by replacement guarantees provided by DSE and DIL. Such replacement guarantees were
expected not to exceed HK$80,000,000. In addition, each of DIL and DSE would contribute an expected amount not
exceeding HK$100,000,000 to the 4S Target Companies by way of equity or loan in proportion to their existing interests
in the 4S Target Companies for working capital purpose.
Since completion, DSE had a 50% economic interest in each of the 4S Target Companies and the 4S Target Companies had
been accounted for as non-wholly owned subsidiaries of DCH Holdings.
As DIL is a substantial shareholder and Mr Mak Hing Lung is a director of various subsidiaries of DCH Holdings, both DIL
and Mr Mak Hing Lung are connected persons of DCH Holdings and the Company. The 4S Target Companies are also
connected persons of DCH Holdings and the Company by virtue of their being associates of Mr Mak Hing Lung. The
transactions contemplated by the abovesaid acquisition and financial assistance constituted connected transactions for
DCH Holdings and for the Company under the Listing Rules.
After completion, certain subsidiaries of the 4S Target Companies (‘the 4S OPCOs’) were held by persons which have the
legal capacity under the regulation as registered shareholders (‘the Registered Owners’) for the benefits of the respective 4S
Target Companies and its subsidiaries (‘the 4S Target Group’) through a series of contractual arrangements implemented by
the 4S Target Group prior to the conversion of relevant 4S OPCOs into companies which could be owned by foreign
enterprises. Such contractual arrangements are fundamental to the legal structure and business operations of the 4S Target
Group and are specifically designed for the purpose of allowing the 4S Target Group (a) to enjoy all the economic benefits, to
exercise management control over the operations and to prevent leakages of assets and values to the registered owners of the
relevant 4S OPCOs; and (b) to acquire, if and when permitted by the relevant PRC laws, the equity interests in the relevant
4S OPCOs at the minimum transfer price permitted under the relevant PRC laws and regulations (i.e. at nil consideration or
at a nominal value).
The Registered Owners are connected persons of DCH Holdings and the Company by virtue of his/her directorship and/or
substantial shareholding in certain subsidiary(ies) of DCH Holdings. The abovesaid contractual arrangements also
constituted connected transactions for DCH Holdings and for the Company.
Pursuant to the 4S Acquisition Agreement, DIL and Mr Mak Hing Lung had guaranteed that the aggregate of (i) 100% of the
audited net profit after taxation of Guangzhou Guangbao Toyota Motors Sale and Service Limited (‘Guangzhou Guangbao’)
(excluding Foshan Junan Toyota Motors Sale and Service Limited and any of its subsidiaries and investments) and (ii) 55%
of the audited net profit after taxation of Guangzhou Junjia Lexus Motors Sale and Service Limited (‘Guangzhou Junjia’)
(excluding any of its subsidiaries and investments), for the period from 1 August 2008 to 31 December 2008 and each of the
two years ending 31 December 2010 shall be no less than RMB 12.9 million, RMB 31 million and RMB 31 million
respectively (together ‘the Guaranteed Profits’). In the event that the adjusted pro-rata net profit after taxation from
Guangzhou Guangbao and Guangzhou Junjia (‘the Adjusted Pro-rata Net Profit’) for the aforesaid period(s) is / are less than
the Guaranteed Profits, 50% of such shortfall shall be indemnified by DIL and Mr Mak Hing Lung to the DCH Holdings
group on a dollar-to-dollar basis in cash. The Adjusted Pro-rata Net Profit for the period from 1 August 2008 to 31 December
2008 had met with the Guaranteed Profits.
87CITIC Pacific Annual Report 2008
Each of DIL and Mr Mak Hing Lung had undertaken to DCH Holdings that, upon completion, the aggregate of 100% and
55% of the net asset value of Guangzhou Guangbao and Guangzhou Junjia (excluding any of their respective subsidiaries
and investments), respectively, would be no less than approximately HK$63.8 million (‘the Guaranteed Net Asset Value’). In
the event the actual net asset value of Guangzhou Guangbao and Guangzhou Junjia (excluding their respective subsidiaries
and investments) attributable to DCH Holdings group (‘the Target Net Asset Value’) falls below the Guaranteed Net Asset
Value, DIL and Mr Mak Hing Lung had undertaken that 50% of such shortfall shall be indemnified. The Target Net Asset
Value was more than the Guaranteed Net Asset Value on completion.
4. On 27 August 2008, Joy Talent Holdings Limited (‘Joy Talent’, a wholly owned subsidiary of the Company) entered into
a capital increase agreement with Tongling Industrial Stated-owned Assets Operation Co., Ltd. (‘Tongling Industrial’),
pursant to which (i) the registered capital of Tongling Xin Yaxing Coking & Chemical Co., Ltd. (‘Tongling Xin Yaxing’, a
non-wholly owned subsidiary of the Company), which is engaged in the construction and operation of a coking project to
provide coking coal and chemical by-products, would be increased from US$50 million to US$99.8 million; and (ii) the total
investment amount of Tongling Xin Yaxing would be increased from US$99.8 million to US$199.6 million. Joy Talent would
solely contribute the full amount of the increase in registered capital, being US$49.8 million, in stages. Upon completion of
the said capital increase, Tongling Industrial’s equity interest in Tongling Xin Yaxing was diluted from 15% to approximately
7.515%, and Joy Talent’s equity interest in Tongling Xin Yaxing increased from 85% to approximately 92.485%.
Tongling Industrial, being a substantial shareholder of Tongling Xin Yaxing before completion of the said capital increase,
is a connected person of the Company.
5. On 12 November 2008, the Company entered into an agreement (‘the Agreement’) with CITIC Group in connection with:
i) the issue by the Company of a convertible bond (‘the Convertible Bond’) to CITIC Group with an aggregate principal
amount of HK$11.625 billion which would be convertible into shares of the Company at an initial conversion price of
HK$8.00 per share. An interest coupon of 2% per annum would be payable from the time of issue of the Convertible Bond
up to but excluding the date the Convertible Bond was to be converted into shares of the Company; and
ii) the novation to CITIC Group of the liabilities and benefits under certain AUD target redemption forward contracts entered
into by the Group (‘Novation’).
The Agreement including the conversion price and the terms of the Novation was negotiated on an arm’s length basis. The
Agreement was approved by the shareholders of the Company on 19 December 2008. Completion of the Agreement took
place on 24 December 2008 on which the Convertible Bond was issued and automatically converted in full into shares of
the Company. Following the conversion of the Convertible Bond on completion, an aggregate of 1,453,125,000 shares of the
Company at the price of HK$8.00 per share were allotted and issued to certain subsidiaries of CITIC Group which became
the controlling shareholder of the Company holding approximately 57.56% interest in the Company. CITIC Group paid
approximately HK$2.47 billion to the Company, being the net amount payable by way of setting off monies due from CITIC
Group under the subscription of the 1,453,125,000 shares of the Company (being HK$11.625 billion) against the amount
payable by the Company to CITIC Group in respect of the Novation (being approximately HK$9.155 billion).
CITIC Group is a substantial shareholder of the Company as at the date of Agreement and is therefore a connected person
of the Company. The transactions are also disclosed as material related party transactions under note 39 to the financial
statements.
88 CITIC Pacific Annual Report 2008
Directors’ report
Continuing Connected TransactionsContinuing connected transactions disclosed in accordance with the Listing Rules are as follows:
1. On 19 March 2008, Jiangsu Ligang Electric Power Company Limited and Jiangyin Ligang Electric Power Generation
Company Limited (collectively the ‘Power Companies’), principally engaged in the construction and operation of the power
station(s) in Ligang, the PRC, entered into an agreement (‘Coal Transportation Agreement’) with Shanghai CITIC Shipping
Corporation Limited (‘CITIC Shipping’), pursuant to which CITIC Shipping agreed to provide the Power Companies with
coal transportation services for the 3 years ending 31 December 2010. The service fee payable under the Coal Transportation
Agreement was negotiated on an arm’s length basis and shall be equal to the prevailing market rate of transportation fee per
ton as confirmed by the parties from time to time. The annual caps for the service fees (nett of demurrage fee) to be incurred
for the transaction was estimated to be RMB 500 million (approximately HK$550 million) for each of the 3 years ending
31 December 2010.
CITIC Shipping is a subsidiary of CITIC HK, a substantial shareholder of the Company, and thus a connected person of
the Company.
The actual amount paid by the Power Companies to CITIC Shipping for the year ended 31 December 2008 under the Coal
Transportation Agreement was approximately RMB 327.65 million.
2. 廣東偉德利電器製造有限公司 (Guangdong Victory Electrical Appliances Manufacturing Co., Ltd.) (‘Guangdong
Victory’) was previously a 20% associate of DCH Holdings and became a wholly owned subsidiary of DCH Holdings
on 29 August 2008. Before DCH Holdings’ acquisition of all the interests in Guangdong Victory, an agency agreement was
entered into between Guangdong Victory and its then intermediate holding company, Anping Holdings Inc. (‘Anping’), on
1 August 2008 for a term of 6 months under which Anping agreed to act as the selling agent for Guangdong Victory. Under
the agency agreement, goods of Guangdong Victory would be sold to Anping at such prices as might be mutually agreed
by the parties provided that such prices should not be lower than the prevailing market prices or, if there were no such
market prices, those prices that were offered by Guangdong Victory to other third parties. Guangdong Victory is principally
engaged in the manufacturing of small electrical appliances in the PRC, focusing in producing electrical kettle and non-stick
kitchenware for worldwide brands covering Europe, North America, Australia and New Zealand markets. Anping is engaged
in investment holding and trading of small electrical appliances.
Anping is an associate of a director of Guangdong Victory and therefore is a connected person of DCH Holdings and
the Company. After DCH Holdings’ acquisition of all the interest in Guangdong Victory, transactions under the agency
agreement became post-completion continuing connected transactions for DCH Holdings and for the Company.
An aggregate amount of approximately HK$63.5 million was payable by Anping to Guangdong Victory during the period
from the completion of the acquisition to 31 December 2008 under the agency agreement.
89CITIC Pacific Annual Report 2008
3. Pursuant to a contract for unit load device (‘ULD’) maintenance and repair entered into between DAS Nordisk Limited
(‘DAS Nordisk’), a non-wholly owned subsidiary of DCH Holdings, and Cathay Pacific Airways Limited (‘CX’) dated 1 July
2005 (with a term which expired on 30 June 2008) (‘the Old ULD Maintenance Services Agreement’), DAS Nordisk agreed to
carry out maintenance and repair services on CX’s ULD equipment. CX is the holding company of Hong Kong Dragon
Airlines Limited (‘KA’), which is a substantial shareholder of certain subsidiaries of DCH Holdings, and therefore a
connected person of the Company. DAS Nordisk is engaged in the provision of maintenance services for air cargo containers,
sale of related spare parts and letting of air cargo equipment. CX is engaged in the operation of scheduled airline services,
airline catering, aircraft handling and engineering.
The arrangements under the Old ULD Maintenance Services Agreement were renewed under a contract entered into between
DAS Nordisk and CX dated 17 September 2008, pursuant to which CX agreed to appoint DAS Nordisk to provide ULD
maintenance and repair services for a term of three years from 1 July 2008 to 30 June 2011 (‘the New ULD Maintenance
Services Agreement’).
The pricing for such maintenance services was determined with reference to the relevant costs associated with the estimated
maintenance hours and the frequency of visit of the relevant type of ULD. The amount of maintenance fees payable by CX to
DAS Nordisk was expected to be subject to an annual cap of HK$60 million for the financial year ended 31 December 2008
and for each of the financial years ending 31 December 2009, 2010 and 2011.
An aggregate amount of approximately HK$34 million was payable by CX to DAS Nordisk during the year.
4. Pursuant to an outsourcing master agreement entered into between DAS Nordisk and Dah Chong Hong – Dragonair
Airport GSE Service Limited (‘DAS’) dated 28 September 2007 (with a term expiring on 31 December 2009) (‘the Original
Outsourcing Master Agreement’), DAS Nordisk agreed to outsource part of its maintenance services on ULD to DAS. DAS
is an associate of KA and therefore a connected person of the Company. DAS is engaged in the provision of airport ground
support equipment maintenance services.
On 17 September 2008, DAS Nordisk entered into a supplemental agreement with DAS to supplement and amend certain
provisions of the Original Outsourcing Master Agreement for the purpose of revising the annual caps for the financial
year ended 31 December 2008 and for the financial year ending 31 December 2009 to HK$41 million and HK$58 million
respectively. The above annual caps were determined with reference to historical transaction values with DAS at market price,
the estimated potential cargo growth, the expected increase in business volume, particularly in view of the renewal of the
transactions pursuant to the New ULD Maintenance Services Agreement, and the expected increase in labour cost.
An aggregate amount of approximately HK$26 million was payable by DAS Nordisk to DAS during the year.
90 CITIC Pacific Annual Report 2008
Directors’ report
The independent non-executive directors of the Company have reviewed the above continuing connected transactions
(the ‘Transactions’) and confirm that the Transactions have been entered into:
a) in the ordinary and usual course of business of the Company;
b) on normal commercial terms or on terms no less favourable to the Company than terms available to or from (as
appropriate) independent third parties; and
c) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of
the shareholders of the Company as a whole.
The auditors of the Company have confirmed that:
a) the Transactions have been approved by the board of directors of the Company;
b) the Transactions have been entered into in accordance with the relevant terms of the relevant agreement governing the
Transactions; and
c) the total amounts of the Transactions have not exceeded the relevant caps as disclosed in the relevant announcements.
Transactions numbered 2 to 4 were entered into by subsidiaries of DCH Holdings. The auditors of the Company further
found that the Transactions numbered 2 to 4 have been entered into in accordance with the pricing policy of DCH Holdings
for these Transactions.
5. On 20 August 2007, Catak Enterprises Corp. (a wholly owned subsidiary of the Company) entered into a sale and
purchase agreement with China Metallurgical Group Corp. (‘MCC’) for the disposal of a 20% interest in Sino Iron Pty Ltd
(‘Sino Iron’, a wholly owned subsidiary of the Company) (‘Disposal’) at cost, i.e. for a consideration equivalent to 20% of all
the funds provided to Sino Iron Holdings Pty Ltd (‘Sino Iron Holdings’) by the Group up to the date of completion of the
Disposal together with interest. The Group’s shareholding in Sino Iron would be reduced to 80% as a result of the Disposal.
Upon completion of the Disposal, MCC will be a substantial shareholder of Sino Iron Holdings and will become a connected
person of the Company. The construction contract and the supplemental agreement thereto previously entered into between
Sino Iron and MCC and the transactions contemplated thereunder will constitute a continuing connected transaction for
the Company.
As at 31 December 2008, the Disposal had not yet been completed. Accordingly the construction contract as supplemented
and the transactions contemplated thereunder did not constitute a continuing connected transaction for the Company
during the year.
The continuing connected transaction in items 2 and 3 are also disclosed as material related party transactions under
note 39 to the financial statements. Apart from this and the transactions with CITIC Group described in item 5 under the
section ‘Connected Transactions’, the material related party transactions for 2008 did not constitute connected transactions
subject to disclosure for the Company.
91CITIC Pacific Annual Report 2008
Share Option Plan Adopted by the CompanyThe Company adopted the CITIC Pacific Share Incentive Plan 2000 (‘the Plan’) on 31 May 2000. The major terms of the Plan
are as follows:
1. The purpose of the Plan is to promote the interests of the Company and its shareholders by (i) providing the participants
with additional incentives to continue and increase their efforts in achieving success in the business of the Company, and (ii)
attracting and retaining the best available personnel to participate in the on-going business operation of the Company.
2. The participants of the Plan are any director, executive or employee of the Company or its subsidiaries as invited by the
Board.
3. The maximum number of shares over which options may be granted under the Plan shall not exceed 10% of (i) the
issued share capital of the Company from time to time or (ii) the issued share capital of the Company as at the date of
adopting the Plan, whichever is the lower. As at 25 March 2009, the maximum number of shares available for issue under
the Plan is 163,757,616, representing approximately 4.49% of the issued share capital.
4. The total number of shares issued and to be issued upon exercise of the options granted to each participant (including
both exercised and outstanding options) in any 12-month period must not exceed 1% of the shares of the Company in issue.
5. The exercise period of any option granted under the Plan must not be more than ten years commencing on the date
of grant.
6. The acceptance of an offer of the grant of the option must be made within 28 days from the date of grant with a non-
refundable payment of HK$1.00 from the grantee.
7. The exercise price determined by the Board will be at least the higher of (i) the closing price of the Company’s shares as
stated in the daily quotations sheet of The Stock Exchange of Hong Kong Limited (‘Stock Exchange’) on the date of grant;
(ii) the average closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets for the five
business days immediately preceding the date of grant and (iii) the nominal value of the Company’s shares.
8. The Plan shall be valid and effective till 30 May 2010.
Since the adoption of the Plan, the Company has granted four lots of share options:
Exercise priceDate of grant Number of Share Options HK$
28 May 2002 11,550,000 18.20
1 November 2004 12,780,000 19.90
20 June 2006 15,930,000 22.10
16 October 2007 18,500,000 47.32
92 CITIC Pacific Annual Report 2008
Directors’ report
All options granted and accepted under the Plan can be exercised in whole or in part within 5 years from the date of grant.
None of such options were cancelled, but options for 50,000 shares have lapsed during the year ended 31 December 2008.
A summary of the movements of the share options during the year ended 31 December 2008 is as follows:
A. Directors of the Company
Number of Share Options
Exercised during Percentage to Exercise price Balance as at the year ended Balance as at issued shareName of Director Date of grant HK$ 01.01.08 31.12.08 31.12.08 capital
Larry Yung Chi Kin 05.12.05 20.50 100,000,000 – – (Note 1)
16.10.07 47.32 2,000,000 – 2,000,000
2,000,000 0.055
Peter Lee Chung Hing 01.11.04 19.90 1,000,000 – 1,000,000 20.06.06 22.10 1,200,000 – 1,200,000 16.10.07 47.32 1,200,000 – 1,200,000
3,400,000 0.093
Carl Yung Ming Jie 01.11.04 19.90 500,000 – 500,000 20.06.06 22.10 600,000 – 600,000 16.10.07 47.32 800,000 – 800,000
1,900,000 0.052
Vernon Francis Moore 01.11.04 19.90 1,000,000 – 1,000,000 20.06.06 22.10 700,000 – 700,000 16.10.07 47.32 600,000 – 600,000
2,300,000 0.063
Li Shilin 16.10.07 47.32 500,000 – 500,000 0.014
Liu Jifu 20.06.06 22.10 700,000 – 700,000 16.10.07 47.32 700,000 – 700,000
1,400,000 0.038
Milton Law Ming To 01.11.04 19.90 334,000 – 334,000 20.06.06 22.10 800,000 – 800,000 16.10.07 47.32 800,000 – 800,000
1,934,000 0.053
Wang Ande 20.06.06 22.10 500,000 150,000 350,000 (Note 2)
16.10.07 47.32 800,000 – 800,000
1,150,000 0.032
Kwok Man Leung 16.10.07 47.32 600,000 – 600,000 0.016 (Note 3)
Chang Zhenming 16.10.07 47.32 500,000 – 500,000 0.014
Leslie Chang Li Hsien 01.11.04 19.90 350,000 – N/A N/A 20.06.06 22.10 800,000 – (Note 4) (Note 4)
16.10.07 47.32 800,000 –
Chau Chi Yin 01.11.04 19.90 500,000 – N/A N/A 20.06.06 22.10 800,000 – (Note 4) (Note 4)
16.10.07 47.32 800,000 –
Note:1. These share options were granted by CITIC HK, a substantial shareholder of the Company, and were waived.
2. The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was HK$35.4.
3. Mr Kwok Man Leung was appointed as director of the Company on 1 April 2008. Thus, this is in respect of the balance as of 1 April 2008.
4. The directors have resigned with effect from 20 October 2008.
93CITIC Pacific Annual Report 2008
B. Employees of the Company working under continuous contracts (as defined in the Employment Ordinance), other than the Directors
Number of Share Options
Exercised during Exercise price Balance as at the year ended Balance as atDate of grant HK$ 01.01.08 31.12.08 31.12.08
1 November 2004 19.90 1,030,000 – 1,030,000
20 June 2006 22.10 2,239,000 193,000 2,046,000 (Note 5)
16 October 2007 47.32 6,750,000 – 6,750,000
Note:5. The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was HK$36.62.
C. Others
Number of Share Options
Exercised during Exercise price Balance as at the year ended Balance as atDate of grant HK$ 01.01.08 31.12.08 31.12.08
1 November 2004 19.90 1,050,000 – 1,050,000 (Note 6)
20 June 2006 22.10 1,600,000 – 1,600,000 (Note 6)
16 October 2007 47.32 1,650,000 – 1,600,000 (Notes 6 and 7)
Note:6. These are in respect of options granted to former directors or employee under continuous contract, who have subsequently resigned or retired.
7. Out of 1,650,000 options, 50,000 options have lapsed during the year.
Share Option Plans Adopted by the Subsidiaries of the Company
CITIC 1616 Holdings LimitedCITIC 1616 Holdings Limited (‘CITIC 1616’) adopted a share option plan (‘CITIC 1616 Share Option Plan’) on 17 May 2007.
The major terms of the CITIC 1616 Share Option Plan are as follows:
1. The purpose of the CITIC 1616 Share Option Plan is to attract and retain the best quality personnel for the development
of CITIC 1616’s businesses; to provide additional incentives to Employees (as defined herebelow); and to promote the long
term financial success of CITIC 1616 by aligning the interests of grantees to shareholders of CITIC 1616.
2. The grantees of the CITIC 1616 Share Option Plan are any person employed by CITIC 1616 or any subsidiary and any
person who is an officer or director (whether executive or non-executive) of CITIC 1616 or any subsidiary (‘Employee’) as the
board of CITIC 1616 may in its absolute discretion select.
3. The maximum number of shares of CITIC 1616 (‘CITIC 1616 Shares’) over which options may be granted under the
CITIC 1616 Share Option Plan must not exceed 10% of (i) the CITIC 1616 Shares in issue from time to time; or (ii) the CITIC
1616 Shares in issue as at the date of adopting the CITIC 1616 Share Option Plan, whichever is the lower. As at 25 March 2009,
the maximum number of CITIC 1616 Shares available for issue under the CITIC 1616 Share Option Plan is 169,280,000,
representing approximately 8.56% of the issued share capital of CITIC 1616.
94 CITIC Pacific Annual Report 2008
Directors’ report
4. The total number of CITIC 1616 Shares issued and to be issued upon exercise of options (whether exercised or
outstanding) in any 12-month period granted to each grantee must not exceed 1% of the CITIC 1616 Shares in issue. Where
any further grant of options to a grantee would result in the CITIC 1616 Shares issued and to be issued upon exercise of all
options granted and to be granted to such person (including exercised, cancelled and outstanding options) in the 12-month
period up to and including the date of such further grant representing in aggregate over 1% of the CITIC 1616 Shares in issue,
such further grant shall be subject to separate approval by the shareholders of CITIC 1616 in its general meeting.
5. The exercise period of any option granted under the CITIC 1616 Share Option Plan must not be more than ten years
commencing on the date of grant.
6. The acceptance of an offer of the grant of the option must be made within 28 days from the date of grant with a non-
refundable payment of HK$1.00 from the grantee.
7. The subscription price determined by the board of CITIC 1616 will not be less than the higher of (i) the closing price of
CITIC 1616 Shares as stated in the daily quotations sheet of the Stock Exchange on the date of grant; (ii) the average closing
price of CITIC 1616 Shares as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately
preceding the date of grant; and (iii) the nominal value of CITIC 1616 Shares.
8. The CITIC 1616 Share Option Plan shall be valid and effective till 16 May 2017.
On 23 May 2007, options to subscribe for a total of 18,720,000 shares in CITIC 1616, representing approximately 1% of the
issued share capital, at the exercise price of HK$3.26 per share, were granted under the CITIC 1616 Share Option Plan. All
options granted and accepted can be exercised in whole or in part within 5 years from the date of grant. All were accepted,
and none were exercised or cancelled but options for 3,555,000 shares have lapsed during the year ended 31 December 2008.
No further options were granted during the year ended 31 December 2008. The grantees were certain directors or employees
of CITIC 1616 working under continuous contracts (as defined in the Employment Ordinance). None were granted to the
directors, chief executives or substantial shareholders of the Company.
Dah Chong Hong Holdings Limitedpre-ipo share option scheme
DCH Holdings adopted the Pre-IPO Share Option Scheme (‘Pre-IPO Scheme’) on 28 September 2007. The major terms of
the Pre-IPO Scheme are as follows:
1. The purpose of the Pre-IPO Scheme is to attract and retain the best quality personnel for the development of DCH
Holdings’ businesses; to provide additional incentives to the employees of the DCH Holdings group and to promote the long
term success of DCH Holdings.
2. The participants of the Pre-IPO Scheme are any employee of DCH Holdings group as the board of DCH Holdings may in
its absolute discretion select.
3. The maximum number of shares over which options may be granted under the Pre-IPO Scheme shall not exceed
18,000,000 shares, being 1% of the total number of issued shares immediately following the commencement of dealings of
DCH Holdings’ shares on the Stock Exchange.
4. The grantee shall not, within 6 months from the listing of DCH Holdings, exercise any of the options granted under the
Pre-IPO Scheme.
5. The exercise period of any option granted under the Pre-IPO Scheme must not be more than five years commencing on
the date of grant.
95CITIC Pacific Annual Report 2008
6. The acceptance of an offer of the grant of the option must be made within 28 days from the date of grant with a non-
refundable payment of HK$1 from the grantee.
7. The subscription price shall be HK$5.88 per share which is equal to the initial public offer price of DCH Holdings’ shares
upon listing.
8. No options will be offered or granted under the Pre-IPO Scheme upon the commencement of dealings in DCH Holdings’
shares on the Stock Exchange.
On 3 October 2007, options to subscribe for a total of 18,000,000 shares in DCH Holdings at the exercise price of HK$5.88
per share were granted under the Pre-IPO Scheme.
All options granted and accepted fully vested on the date of grant but have a lock-up period of 6 months from the listing of
DCH Holdings and are then exercisable in whole or in part within 5 years from the date of grant.
None of the options granted under the Pre-IPO Scheme were exercised or cancelled but options for 600,000 shares have
lapsed during the year.
post-ipo share option scheme
DCH Holdings adopted the Post-IPO Share Option Scheme (‘Post-IPO Scheme’) on 28 September 2007. The major terms of
the Post-IPO Scheme are as follows:
1. The purpose of the Post-IPO Scheme is to attract and retain the best quality personnel for the development of
DCH Holdings’ businesses; to provide additional incentives to the employees and to promote the long term success of
DCH Holdings.
2. The participants of the Post-IPO Scheme are any employee of DCH Holdings group as the board of DCH Holdings may
in its absolute discretion select.
3. The maximum number of shares over which options may be granted under the Post-IPO Scheme and any other schemes
of DCH Holdings shall not in aggregate exceed 10% of (i) the shares of DCH Holdings in issue immediately following the
commencement of dealings in DCH Holdings’ shares on the Stock Exchange or (ii) the shares of DCH Holdings in issue
from time to time, whichever is the lower. As at 25 March 2009, the maximum number of shares available for issue under
the Post-IPO Scheme is 161,783,300, representing approximately 9% of the issued share capital of DCH Holdings. Options
lapsed in accordance with the terms of the Post-IPO Scheme or any other schemes of DCH Holdings will not be counted for
the purpose of calculating the 10% limit.
4. The total number of shares issued and to be issued upon exercise of options (whether exercised or outstanding) in any
12-month period granted to each grantee must not exceed 1% of the shares of DCH Holdings in issue.
5. The exercise period of any option granted under the Post-IPO Scheme must not be more than ten years commencing on
the date of grant.
6. The acceptance of an offer of the grant of the option must be made within 28 days from the date of grant with a non-
refundable payment of HK$1 from the grantee.
7. The subscription price determined by the board of DCH Holdings will not be less than whichever is the higher of (i) the
closing price of DCH Holdings’ shares as stated in the Stock Exchange’s daily quotations sheet on the date of grant; (ii) the
average closing price of DCH Holdings’ shares as stated in the Stock Exchange’s daily quotations sheets for the five business
days immediately preceding the date of grant; and (iii) the nominal value of a share of DCH Holdings.
8. The Post-IPO Scheme shall be valid and effective till 27 September 2017, after which no further options will be granted.
DCH Holdings has not granted any options under the Post-IPO Scheme.
96 CITIC Pacific Annual Report 2008
Directors’ report
Directors’ Interests in SecuritiesThe interests of the directors in shares of the Company or any associated corporation (within the meaning of Part XV of the
Securities and Futures Ordinance (‘SFO’)) as at 31 December 2008 as recorded in the register required to be kept under
section 352 of the SFO were as follows:
1. Shares in the Company and Associated Corporations
Number of shares
Personal interests unless Percentage to otherwise stated issued share capital
CITIC Pacific Limited Larry Yung Chi Kin 418,418,000 (Note 1) 11.475
Henry Fan Hung Ling 50,640,000 (Note 2) 1.389
Peter Lee Chung Hing 1,000,000 0.027
Carl Yung Ming Jie 300,000 0.008
Vernon Francis Moore 4,200,000 (Note 3) 0.115
Li Shilin 300,000 0.008
Liu Jifu 840,000 0.023
Wang Ande 400,000 0.011
Hansen Loh Chung Hon 1,550,000 (Note 4) 0.043
André Desmarais 10,145,000 (Note 5) 0.278
Peter Kruyt 34,100 0.001 (alternate director to Mr André Desmarais)
CITIC 1616 Holdings Limited Vernon Francis Moore 200,000 (Note 3) 0.010
Dah Chong Hong Holdings Limited Li Shilin 12,000 0.001
Liu Jifu 33,600 (Note 6) 0.002
Hansen Loh Chung Hon 62,000 (Note 7) 0.003
CITIC Guoan Information Industry Co., Ltd.Li Shilin 92,466 0.006 Note:1. Corporate interest
2. Corporate interest in respect of 5,640,000 shares and trust interest in respect of 45,000,000 shares
3. Trust interest
4. Personal interest in respect of 1,050,000 shares; corporate interest in respect of 500,000 shares and family interest in respect of 500,000 shares which duplicate each other
5. Corporate interest in respect of 10,000,000 shares and family interest in respect of 145,000 shares
6. Family interest
7. Corporate interest in respect of 20,000 shares and joint interest in respect of 42,000 shares
97CITIC Pacific Annual Report 2008
2. Share Options in the CompanyThe interests of the directors in the share options (being regarded as unlisted physically settled equity derivatives) of the
Company are stated in detail in the preceding section of Share Option Plan.
3. Share Options in an associated corporation, CITIC Capital Holdings Limited
Number of share options
Lapsed / cancelled / Granted during exercised during Percentage to Balance as at the year ended the year ended Balance as at issued shareName of Director Date of grant 01.01.08 31.12.08 31.12.08 31.12.08 capital
Peter Lee Chung Hing 02.03.05 15,000 – – 15,000 04.04.06 10,000 – – 10,000 11.12.07 10,000 – – 10,000
35,000 0.125
Vernon Francis Moore 02.03.05 15,000 – – 15,000 04.04.06 10,000 – – 10,000 11.12.07 10,000 – – 10,000
35,000 0.125
Chang Zhenming 11.12.07 125,000 – – 125,000 0.446
Save as disclosed above, as at 31 December 2008, none of the directors of the Company had nor were they taken to or
deemed to have, under Part XV of the SFO, any interests or short positions in the shares, underlying shares or debentures
of the Company or its associated corporations or any interests which are required to be entered into the register kept by the
Company pursuant to section 352 of the SFO or any interests which are required to be notified to the Company and the Stock
Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules.
Save as disclosed above, at no time during the year were there any subsisting agreements enabling the directors of the
Company to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other corporate,
which at the relevant time, the Company, any of its subsidiary companies, its holding company or any of its fellow subsidiary
companies was a party.
98 CITIC Pacific Annual Report 2008
Directors’ report
Substantial ShareholdersAs at 31 December 2008, the interests of the substantial shareholders, other than the directors of the Company or their
respective associate(s), in the shares of the Company as recorded in the register of interests in shares and short positions
required to be kept under section 336 of the SFO were as follows:
1. Interest in the Shares
Name Number of Shares of the Company Percentage to issued share capital
CITIC Group 2,098,736,285 57.558
CITIC HK 747,486,203 20.500
Heedon Corporation 598,261,203 16.407
Full Chance Investments Limited 450,416,694 12.353
Newease Investments Limited 450,416,694 12.353
Skyprofit Holdings Limited 450,416,694 12.353
Honpville Corporation 310,988,221 8.529
CITIC Group is a substantial shareholder of the Company holding indirect interest in the Company through the following
wholly owned subsidiary companies:
Name of subsidiary companies of CITIC Group Number of Shares of the Company Percentage to issued share capital
CITIC HK 747,486,203 20.500
Full Chance Investments Limited 450,416,694 12.353
Newease Investments Limited 450,416,694 12.353
Skyprofit Holdings Limited 450,416,694 12.353
CITIC HK is a substantial shareholder of the Company holding indirect interest in the Company through the following
wholly owned subsidiary companies:
Name of subsidiary companies of CITIC HK Number of Shares of the Company Percentage to issued share capital
Affluence Limited 46,089,000 1.264
Winton Corp. 30,718,000 0.842
Westminster Investment Inc. 101,960,000 2.796
Jetway Corp. 122,336,918 3.355
Cordia Corporation 32,258,064 0.885
Honpville Corporation 310,988,221 8.529
Hainsworth Limited 93,136,000 2.554
Southpoint Enterprises Inc. 10,000,000 0.274
Raymondford Company Limited 2,823,000 0.077
99CITIC Pacific Annual Report 2008
CITIC Group is the holding company of CITIC HK, Full Chance Investments Limited, Newease Investments Limited and
Skyprofit Holdings Limited. CITIC HK is the direct holding company of Heedon Corporation, Hainsworth Limited,
Affluence Limited and Barnsley Investments Limited. Heedon Corporation is the direct holding company of Winton Corp.,
Westminster Investment Inc., Jetway Corp., Kotron Company Ltd. and Honpville Corporation. Kotron Company Ltd. is the
direct holding company of Cordia Corporation. Affluence Limited is the direct holding company of Man Yick Corporation
which is the direct holding company of Raymondford Company Limited. Barnsley Investments Limited is the direct holding
company of Southpoint Enterprises Inc.
Accordingly,
i) the interests of CITIC Group in the Company duplicate the interests of CITIC HK, Full Chance Investments Limited,
Newease Investments Limited and Skyprofit Holdings Limited in the Company;
ii) the interests of CITIC HK in the Company duplicate the interests in the Company of all its direct and indirect subsidiary
companies as described above;
iii) the interests of Heedon Corporation in the Company duplicate the interests in the Company of all its direct and indirect
subsidiary companies as described above;
iv) the interests of Kotron Company Ltd. in the Company duplicate the interests of Cordia Corporation in the Company;
v) the interests of Affluence Limited in the Company duplicate the interests in the Company of its direct and indirect
subsidiary companies as described above;
vi) the interests of Man Yick Corporation in the Company duplicate the interests of Raymondford Company Limited in the
Company; and
vii) the interests of Barnsley Investments Limited in the Company duplicate the interests of Southpoint Enterprises Inc. in the
Company.
Share CapitalDuring the year ended 31 December 2008, the Company made the following repurchases of its own shares on the Stock
Exchange for purpose of enhancing its earnings per share:
Price Per Share
Number of Shares AggregateMonth / Year repurchased Highest (HK$) Lowest (HK$) price paid (HK$)
January 2008 15,484,000 37.90 32.25 545,205,150
June 2008 2,837,000 30.40 28.50 83,689,450
September 2008 1,000,000 25.55 24.90 25,236,050
These repurchased shares were cancelled upon repurchase and accordingly the issued share capital of the Company was
reduced by the nominal value of these shares. The premium payable on repurchase was charged against retained profit.
An amount equivalent to the nominal value of the shares cancelled of approximately HK$7.7 million was transferred from
retained profit to capital redemption reserve.
Save as disclosed above, neither the Company nor any of its subsidiary companies has purchased or sold any of the
Company’s shares during the year ended 31 December 2008 and the Company has not redeemed any of its shares during
the year ended 31 December 2008.
100 CITIC Pacific Annual Report 2008
Directors’ report
During the year ended 31 December 2008, 1,453,125,000 shares were issued upon conversion of the Convertible Bond and
343,000 shares were issued under the Share Option Plan, both of which have been described in the sections above.
Service ContractsAs at 31 December 2008, there were no service contracts which were not determinable by the employer within one year
without payment of compensation (other than statutory compensation) between any company in the Group and any director
proposed for re-election at the forthcoming Annual General Meeting.
Continuing Disclosure Requirements under Rule 13.22 of the Listing RulesThe Company has included a proforma combined balance sheet of the relevant affiliated companies as required therein
under Rule 13.22 of the Listing Rules. Affiliated companies include associated companies and jointly controlled entities.
Proforma combined balance sheet of affiliated companies
Group’s attributable interestin HK$ million as at 31 Dec 2008
Fixed Assets 5,334
Jointly Controlled Entities 306
Deferred Tax Assets 57
Intangible Assets 8
Other Non Current Assets 4,337
Net Current Assets 4,582
Total Assets Less Current Liabilities 14,624
Long Term Borrowings (3,597 )
Deferred Tax Liabilities (325 )
Loan from Shareholders (5,733 )
4,969
AuditorsThe accounts for the year have been audited by PricewaterhouseCoopers who shall retire and, being eligible, shall offer
themselves for re-appointment.
Sufficiency of Public FloatBased on information that is publicly available to the Company and within the knowledge of the directors, the directors
confirm that the Company has maintained the amount of public float as required under the Listing Rules during the year
ended 31 December 2008.
By Order of the Board,
Larry Yung Chi Kin Chairman
Hong Kong, 25 March 2009
101CITIC Pacific Annual Report 2008
Contents of Financial Statements and Notes
Financial Statements 102 Consolidated Profit and Loss Account 103 Consolidated Balance Sheet 104 Balance Sheet 105 Consolidated Cash Flow Statement 108 Consolidated Statement of Changes in Equity
Notes to the Financial Statements 109 1 Significant Accounting Policies 120 2 Critical Accounting Estimates and Judgements 122 3 Turnover and Revenue 123 4 Other Income and Net Gains 123 5 (Loss) / Gain from Leveraged Foreign Exchange Contracts 125 6 Segment Information 127 7 (Loss) / Profit from Consolidated Activities 128 8 Net Finance Charges 129 9 Taxation 130 10 (Loss) / Profit Attributable to Shareholders of the Company 130 11 Dividends 130 12 (Loss) / Earnings per Share 131 13 Directors’ Emoluments 132 14 Individuals with Highest Emoluments 132 15 Retirement Benefits 133 16 Fixed Assets 137 17 Subsidiary Companies 138 18 Jointly Controlled Entities 139 19 Associated Companies 140 20 Other Financial Assets 141 21 Intangible Assets 142 22 Non-Current Deposits 142 23 Other Assets Held for Sale 143 24 Inventories 143 25 Debtors, Accounts Receivable, Deposits and Prepayments 144 26 Creditors, Accounts Payable, Deposits and Accruals 145 27 Share Capital 147 28 Reserves 150 29 Borrowings 152 30 Financial Risk Management 157 31 Capital Risk Management 157 32 Derivative Financial Instruments 159 33 Deferred Taxation 160 34 Provisions 161 35 Capital Commitments 162 36 Operating Lease Commitments 162 37 Business Combinations and Disposals 165 38 Contingent Liabilities 165 39 Material Related Party Transactions 167 40 Ultimate Holding Company 167 41 Post Balance Sheet Events 167 42 Comparative Figures 167 43 Approval of Financial Statements 168 44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies
177 Independent Auditor’s Report
102 CITIC Pacific Annual Report 2008
As restatedin HK$ million Note 2008 2007
Turnover 3 46,420 38,534
Cost of sales (38,367 ) (30,880 )
Gross profit 8,053 7,654
Other income and net gains 4 2,131 4,870
Distribution and selling expenses (1,477 ) (1,025 )
Other operating expenses (3,028 ) (3,733 )
Change in fair value of investment properties 12 1,002
Profit from consolidated activities before (loss) / gain from leveraged foreign exchange contracts 5,691 8,768
(Loss) / gain from leveraged foreign exchange contracts 5 (15,891 ) 22
(Loss) / profit from consolidated activities 6 & 7 (10,200 ) 8,790
Share of results of 6 Jointly controlled entities 200 1,344
Associated companies (1,736 ) 2,257
(Loss) / profit before net finance charges and taxation (11,736 ) 12,391
Finance charges (1,095 ) (280 )
Finance income 499 226
Net finance charges 8 (596 ) (54 )
(Loss) / profit before taxation (12,332 ) 12,337
Taxation 9 578 (770 )
(Loss) / profit for the year (11,754 ) 11,567
Attributable to: Shareholders of the company 10 (12,662 ) 10,843
Minority interests 908 724
(11,754 ) 11,567
Dividends 11 (658 ) (3,097 )
(Loss) / earnings per share for (loss) / profit attributable to shareholders of the company during the year (HK$) 12 Basic (5.68 ) 4.91
Diluted (5.68 ) 4.90
Consolidated Profit and Loss Accountfor the year ended 31 December 2008
103CITIC Pacific Annual Report 2008
As restatedin HK$ million Note 2008 2007
Non-current assetsFixed assets 16 Property, plant and equipment 23,028 12,154 Investment properties 11,230 10,895 Properties under development 9,848 4,288 Leasehold land 2,320 1,641 46,426 28,978Jointly controlled entities 18 21,140 17,446Associated companies 19 15,084 17,941Other financial assets 20 1,063 7,502Intangible assets 21 8,979 4,602Deferred tax assets 33 1,967 100Derivative financial instruments 32 235 150Non-current deposits 22 8,709 5,723 103,603 82,442Current assetsProperties held for sale 733 440Other assets held for sale 23 – 1,127Inventories 24 5,605 5,982Derivative financial instruments 32 1,016 251Debtors, accounts receivable, deposits and prepayments 25 9,931 8,041Cash and bank deposits 18,296 8,045 35,581 23,886Current liabilitiesBank loans, other loans and overdrafts secured 29 490 328 unsecured 29 8,892 3,326Creditors, accounts payable, deposits and accruals 26 13,500 10,661Derivative financial instruments 32 3,043 66Provision for taxation 274 590Liabilities held for sale – 2 26,199 14,973 Net current assets 9,382 8,913 Total assets less current liabilities 112,985 91,355Non-current liabilitiesLong term borrowings 29 47,852 25,000Deferred tax liabilities 33 1,710 1,587Derivative financial instruments 32 6,682 69Provisions 34 734 – 56,978 26,656Net assets 6 56,007 64,699
EquityShare capital 27 1,458 885Reserves 28 48,513 57,138Proposed dividend – 1,770Equity attributable to shareholders of the company 49,971 59,793Minority interests in equity 6,036 4,906Total equity 56,007 64,699
Peter Lee Chung Hing Vernon Francis MooreDirector Director
Consolidated Balance Sheetas at 31 December 2008
104 CITIC Pacific Annual Report 2008
As restatedin HK$ million Note 2008 2007
Non-current assetsFixed assets Property, plant and equipment 16 16 19
Subsidiary companies 17 65,026 57,062
Jointly controlled entities 18 5,305 4,016
Associated companies 19 5,551 5,632
Derivative financial instruments 32 1,113 127
77,011 66,856
Current assetsDerivative financial instruments 32 1,376 240
Amounts due from subsidiary companies 17 1,577 2,964
Debtors, accounts receivable, deposits and prepayments 25 190 278
Cash and bank deposits 7,289 297
10,432 3,779
Current liabilitiesBank loans, other loans and overdrafts Unsecured 29 4,601 1,686
Amounts due to subsidiary companies 17 9,801 9,426
Creditors, accounts payable, deposits and accruals 26 300 153
Derivative financial instruments 32 1,749 271
Provision for taxation – 13
16,451 11,549
Net current liabilities (6,019 ) (7,770 )
Total assets less current liabilities 70,992 59,086
Non-current liabilitiesLong term borrowings 29 27,237 15,799
Derivative financial instruments 32 3,885 70
31,122 15,869
Net assets 39,870 43,217
EquityShare capital 27 1,458 885
Reserves 28 38,412 40,562
Proposed dividend – 1,770
Equity attributable to shareholders of the company 39,870 43,217
Peter Lee Chung Hing Vernon Francis MooreDirector Director
Balance Sheet
as at 31 December 2008
105CITIC Pacific Annual Report 2008
in HK$ million 2008 2007
Cash flows from operating activities(Loss) / profit before taxation (12,332 ) 12,337
Share of results of jointly controlled entities and associated companies 1,536 (3,601 )
Net finance charges 596 54
Income from other financial assets (96 ) (86 )
Depreciation and amortisation 1,091 1,185
Impairment losses 650 863
Net gain from sale of other financial assets (1,215 ) –
Loss / (gain) on foreign exchange contracts 15,891 (22 )
Expected losses on construction contracts – 8
Share-based payment – 184
(Gain) / loss on disposal of property, plant and equipment (47 ) 271
Negative goodwill from acquisition of a jointly controlled entity (73 ) –
Change in fair value of investment properties (12 ) (1,002 )
Profit on disposal of interests in subsidiary companies and associated companies (170 ) (4,600 )
Profit on disposal of jointly controlled entities (422 ) (1 )
Operating profit before working capital changes 5,397 5,590
Decrease / (increase) in inventories 934 (1,904 )
Increase in debtors, accounts receivable, deposits and prepayments (91 ) (1,634 )
Increase in creditors, accounts payable, deposits and accruals 859 2,872
Effect of foreign exchange rate changes (34 ) (11 )
Cash generated from operating activities 7,065 4,913
Payment for leveraged foreign exchange contracts (1,691 ) –
Interest received 457 230
Interest paid (1,840 ) (1,027 )
Other finance charges (47 ) (39 )
Income taxes paid (1,021 ) (459 )
Net cash from consolidated activities 2,923 3,618
Consolidated Cash Flow Statementfor the year ended 31 December 2008
106 CITIC Pacific Annual Report 2008
in HK$ million 2008 2007
Cash flows from investing activitiesPurchase of Subsidiary companies (net of cash and cash equivalents acquired) (Note 37) (392 ) –
Additional interests in subsidiary companies – (165 )
Property under development (3,990 ) (1,460 )
Property, plant and equipment (10,199 ) (3,604 )
Leasehold land (292 ) (331 )
Intangible assets (2,756 ) (886 )
Other financial assets (393 ) (1,409 )
Proceeds of Disposal of property, plant and equipment 486 125
Sale of other financial assets 3,368 4
Disposal of interests in jointly controlled entity 978 –
Disposal of interests in subsidiary companies (net of cash and cash equivalents disposed) (Note 37) 525 55
Increase in pledged deposit with banks (102 ) (71 )
Gross proceeds from listing of subsidiary companies – 6,083
Issue of subsidiaries’ shares – 665
Payments in non-current deposits (4,584 ) (5,707 )
Investment in jointly controlled entities and associated companies (2,547 ) (1,871 )
(Increase) / decrease in loans to jointly controlled entities and associated companies (815 ) 708
Dividend received from jointly controlled entities and associated companies 824 1,673
Income received from other financial assets 96 86
Net cash used in investing activities (19,793 ) (6,105 )
Consolidated Cash Flow statement
107CITIC Pacific Annual Report 2008
in HK$ million 2008 2007
Cash flows from financing activities Proceeds from issue of shares net of amount payable under Novation Contracts (see Note) 2,470 –
Issue of shares pursuant to the Plan 8 430
Repurchase of shares (656 ) (110 )
New borrowings 32,800 14,992
Repayment of loans (5,226 ) (4,966 )
(Decrease) / increase in minority interests (265 ) 23
Dividends paid (2,415 ) (3,756 )
Net cash from financing activities 26,716 6,613
Net increase in cash and cash equivalents 9,846 4,126
Cash and cash equivalents at 1 January 8,017 3,634
Effect of foreign exchange rate changes 254 257
Cash and cash equivalents at 31 December 18,117 8,017
Analysis of the balances of cash and cash equivalentsCash and bank deposits 18,296 8,045
Bank overdrafts and pledged deposits (179) (28)
18,117 8,017
Major non-cash transactionConsideration from issue of new shares 11,625
Less: amount payable by the Company to CITIC Group in respect of the Novation Contracts 9,155
Net cash proceeds 2,470
Note: The Novation Contracts are described in details under Note 5.
Consolidated Cash Flow statement
108 CITIC Pacific Annual Report 2008
2008 2007 Minority Minorityin HK$ million Note Group interest Group interest
At 1 January 59,793 4,906 46,510 1,499
Share of reserves of jointly controlled entities and associated companies (140 ) – 112 –
Fair value (loss) / gain on other financial assets (453 ) – 3,292 –
Transfer from investment revaluation reserve to profit and loss account on disposal of other financial assets (4,095 ) – – –
Reserves released on disposal of jointly controlled entities (93 ) – – –
Exchange translation differences 1,701 278 2,168 102
Transfer to profit and loss account on impairment of other financial assets 98 – 77 –
(Loss) / gain on cash flow hedge of financial instruments (3,459 ) – 57 –
Disposal of interest in subsidiaries companies (Note) – – (46 ) 2,285
Net (loss) / income recognised in equity (6,441 ) 278 5,660 2,387
(Loss) / profit for the year (12,662 ) 908 10,843 724
Total recognised (loss) / income for the year (19,103 ) 1,186 16,503 3,111
Share of capital reserves of jointly controlled entities and associated companies 79 – 36 –
Dividends to shareholders of the Company 11 (2,415 ) – (3,756 ) –
Dividends paid to minority shareholders of subsidiaries – (439 ) – (157 )
Share repurchase (656 ) – (110 ) –
Share-based payment – – 179 7
Expiration of put options granted by a subsidiary company to the minority shareholders of a subsidiary company – – – 585
Acquisition of interest from minority shareholders – (2 ) – (162 )
Minority interest arising from acquisition of subsidiaries – 251 – –
Capital injection by minority shareholders – 136 – 23
Purchase of own shares by a subsidiary – (2 ) – –
Share options exercisedPremium received 7 – 423 –
Share capital issued – – 8 –
Issue of shares upon full conversion of the convertible bond 27Premium received 11,685 – – –
Share capital issued 581 – – –
At 31 December 49,971 6,036 59,793 4,906
RepresentingAt 31 December after proposed final and special dividend 49,971 6,036 58,023 4,906
Proposed final and special dividend 11 – – 1,770 –
49,971 6,036 59,793 4,906
Note:Minority interests in 2007 included the financial impact of the listing of two subsidiary companies during that year.
Consolidated Statement of Changes in Equityfor the year ended 31 December 2008
109CITIC Pacific Annual Report 2008
1 Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated accounts are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
a Basis of PreparationThe accounts have been prepared in accordance with Hong Kong Financial Reporting Standards (‘HKFRS’), and under the
historical cost convention, except as disclosed in the accounting policies below.
i) Amendments and interpretations effective in 2008
In 2008, the Group adopted certain new or revised standards and amendments of HKFRSs which were issued and became
effective during the year ended 31 December 2008, and among which the following has an impact on the accounts.
• HK(IFRIC)-Int 12 ‘Service Concession Arrangements’
In accordance with HK(IFRIC)-Int 12, a vehicular tunnel is regarded as a service concession arrangement. As such, the
Group has recognised The Eastern Harbour Tunnel as an intangible asset instead of property, plant and equipment under
fixed assets with retrospective effect from 1 January 2007. The carrying amount as at 1 January 2007 of HK$1,102 million,
and as at 31 December 2007 and 1 January 2008 of HK$1,004 million have also been restated respectively.
The adoption of the above interpretation did not result in substantial changes to the Group’s accounting policies and has no
effect on the Group’s results reported for the year ended 31 December 2008.
With effect from 1 January 2008, the Group changed the presentation of Turnover by not including the proceeds from sale of
investments. Amounts included in Turnover and Cost of sales for the year ended 31 December 2007 aggregating HK$6,124
million and HK$1,529 million respectively have been reclassified accordingly.
During the year, the Group revised the estimated useful lives of the property, plant and equipment in its special steel
business. As a result of this, the depreciation expenses have decreased by approximately HK$264 million for the year
ended 31 December 2008.
Notes to the Financial Statements
Notes to the fiNANciAl stAtemeNts
110 CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
a Basis of Preparation continued
ii) The following new standards, amendments and interpretations which have been issued by the Hong Kong Institute of
Certified Public Accountants (‘HKICPA’) as of 31 December 2008 may impact the Group in future years but are not yet
effective for the year ended 31 December 2008:
Application date
HKAS 1 (Revised) – Presentation of financial statements 1 January 2009
HKAS 16 (Amendment) – Property, plant and equipment 1 January 2009
HKAS 23 (Revised) – Borrowing costs 1 January 2009
HKAS 27 (Revised) / (Amendment) – Consolidation and separate financial statements 1 July 2009
HKAS 28 (Amendment) – Investments in associates 1 January 2009
HKAS 36 (Amendment) – Impairment of assets 1 January 2009
HKAS 39 – Financial instruments: Recognition and measurement − Amendments for eligible hedged items 1 July 2009
HKAS 40 (Amendment) – Investment property 1 January 2009
HKFRS 2 (Amendment) – Vesting conditions and cancellations 1 January 2009
HKFRS 3 (Revised) – Business combinations and consequential amendments 1 July 2009
HKFRS 8 – Operating segments 1 January 2009
HK(IFRIC) Interpretation 13 – Customer loyalty programmes 1 July 2009
HK(IFRIC) Interpretation 16 – Hedges of a net investment in a foreign operation 1 October 2008
The Group has not early adopted the above standards, amendments or interpretations and is in the process of assessing their
impact on future accounting periods.
b Basis of ConsolidationThe consolidated accounts incorporate the accounts of the Company and all its subsidiary companies made up to the balance
sheet date. The results of subsidiary companies acquired or disposed of during the year are included as from the effective
dates of acquisition or up to the effective dates of disposal respectively.
c GoodwillPositive goodwill arising on the acquisition of subsidiary companies, jointly controlled entities and associated companies
represents the excess of the cost of the acquisition over the Group’s share of the fair value of the identifiable assets, liabilities
and contingent liabilities acquired.
Negative goodwill arising on the acquisition of subsidiary companies, jointly controlled entities and associated companies
represents the excess of the Group’s share of the fair value of the identifiable assets, liabilities and contingent liabilities
acquired over the cost of the acquisition.
Positive goodwill will be stated in the consolidated balance sheet as a separate asset or included within jointly controlled
entities and associated companies at cost less accumulated impairment losses and is subject to impairment testing at least
annually. Impairment losses on goodwill are not reversed. Negative goodwill is recognised in profit and loss account
immediately on acquisition.
Notes to the fiNANciAl stAtemeNts
111CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
d Subsidiary CompaniesA subsidiary company is a company which is controlled by the Company through share ownership or otherwise. Control
represents the power to govern the financial and operating policies of that company.
The purchase method of accounting is used to account for the acquisition of subsidiary companies. The cost of an acquisition
is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date
of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective
of the extent of any minority interests.
Minority interests in the balance sheet comprise the outside shareholders’ proportion of the net assets of subsidiary
companies. The Group applies a policy of treating transactions with minority interests as transactions with parties external
to the Group. Disposals of equity interests to minority interests result in gains and losses for the Group that are recorded
in the profit and loss account. Purchases of equity interests from minority interests result in goodwill, being the difference
between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary company.
Investments in subsidiary companies are carried in the Company’s balance sheet at cost less any impairment. The results of
subsidiary companies are accounted for by the Company on the basis of dividends received and receivable.
e Jointly Controlled EntitiesA jointly controlled entity is a joint venture in which the Group and other parties undertake an economic activity which is
subject to joint control.
The consolidated profit and loss account includes the Group’s share of the results of the jointly controlled entities for the year
adjusted by impairment losses, if any. The consolidated balance sheet includes the Group’s share of the net assets of the jointly
controlled entities and goodwill on acquisition.
When the Group’s share of losses equals or exceeds its interest in the jointly controlled entity, including any unsecured
receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of
the jointly controlled entity.
Unrealised gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the
Group’s interest in the jointly controlled entities. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of an asset transferred.
Accounting policies of jointly controlled entities have been changed where necessary to ensure consistency with the policies
adopted by the Group.
In the Company’s balance sheet, the investments in jointly controlled entities are stated at cost less any impairment losses.
The results of jointly controlled entities are accounted for by the Company on the basis of dividends received and receivable.
Notes to the fiNANciAl stAtemeNts
112 CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
f Associated CompaniesAssociated companies are companies, other than subsidiary companies and jointly controlled entities, in which the Group
holds not more than 50 per cent of the equity share capital for the long term and over whose management it can exercise
significant influence.
The consolidated profit and loss account includes the Group’s share of the results of associated companies for the year
adjusted by impairment losses, if any. The consolidated balance sheet includes the Group’s share of net assets of the associated
companies, after attributing fair values to the net assets at the date of acquisition.
When the Group’s share of losses in an associate equals or exceeds its interest in the associated company, including any
unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments
on behalf of the associated company.
Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s
interest in the associated companies. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of an asset transferred.
Accounting policies of associated entities have been changed where necessary to ensure consistency with the policies adopted
by the Group.
In the Company’s balance sheet, the investments in associated companies are stated at cost less any impairment. The results
of associated companies are only reflected to the extent dividends are received or are receivable.
g Property, Plant and EquipmentProperty, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment.
Assets in the course of construction for production, rental or administrative purposes are carried at cost, less any recognised
impairment. Cost includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling
and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads.
Construction in progress in respect of the iron ore mining project includes expenditure such as bank charges, interest costs,
equipment hire costs, consultants’ costs and depreciation costs. Such costs are capitalised in the balance until commencement
of mine production and then amortised in accordance with Note 1(n).
No depreciation is provided in respect of construction in progress. Upon completion and commissioning for operation,
depreciation will be provided at the appropriate rate specified below.
Property, plant and equipment are depreciated at rates sufficient to write off their cost, less impairment losses, if any, over
their estimated useful lives on a straight line basis at the following annual rates:
Freehold land is not amortised.
• Buildings: 2% – 4% or the remaining lease period of the land where applicable
• Plant and machinery: 9% – 20%
• Other property, plant and equipment, comprising
telecommunications equipment, traffic equipment,
cargo lighters, computer installations, motor
vehicles, furniture, fixtures and equipment: 10% – 25%
Assets’ useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
Notes to the fiNANciAl stAtemeNts
113CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
h Investment PropertiesInvestment properties are interests in land and / or buildings in respect of which construction work and development have
been completed and which are held for their investment potential. These include land held for a currently undetermined
future use. Land held under operating leases is classified and accounted for as investment property when the rest of the
definition of investment property is met.
Investment properties are stated in the balance sheet at fair values which are reviewed annually. Any gain or loss arising from
a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss account.
i Properties under DevelopmentProperties under development consist of investments in land for development and buildings under construction and
development pending any positive intention either to retain them for investment purposes or to sell them for proceeds.
Investments in leasehold land are amortised over the lease term, and are stated at cost less accumulated amortisation and any
accumulated impairment. Amortisation of leasehold land will be capitalised as the cost of buildings during the construction
period. The investments in buildings under construction and development are stated at cost less any accumulated
impairment losses.
j Capitalisation of Development CostsProperty development expenditure, inclusive of interest and professional fees, is capitalised as cost of development.
Borrowing costs incurred on assets under development that take a substantial period of time to get ready for their intended
use or sale are capitalised into the carrying value of the assets under development.
The capitalisation rate applied to funds borrowed for the development of the assets is based on the attributable cost of funds
to the Group.
All other borrowing costs are charged to the profit and loss account in the period in which they are incurred.
k Properties Held for SaleProperties held for sale consisting of leasehold land and buildings are classified under current assets and stated at the lower
of cost and net realisable value. Leasehold land is stated at cost less accumulated amortisation and any impairment. Building
costs are stated at cost less any impairment.
l Leasehold LandLeasehold land comprises land held under operating lease arrangements and is amortised on a straight-line basis over the
lease term.
m Intangible AssetsIntangible assets comprise goodwill, expenditure on mining rights and a vehicular tunnel concession. The accounting
policies for goodwill and exploration, evaluation and development expenditure of mining rights are outlined in accounting
policies 1(c) and 1(n).
Amortisation of the vehicular tunnel concession is based on the actual traffic volume in the year compared to the projected
traffic volume for the remainder of the concession period.
Notes to the fiNANciAl stAtemeNts
114 CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
n Mining Exploration, Evaluation and Development ExpenditureMining exploration, evaluation and development expenditures incurred are capitalised and carried forward in respect of
each identifiable area of interest where the rights to mine are current and:
• It is expected that the expenditure will be recouped by future development and commercial exploitation or sale; or,
• At the balance sheet date, exploration and evaluation activities have not reached a stage, which permits a reasonable
assessment of the existence of economically recoverable reserves, and active and significant operations are continuing.
Amortisation of costs carried forward is not charged until production commences. When production commences,
capitalised expenditures on exploration, evaluation and development are amortised over the life of the area of interest
to which they relate. Amortisation is recognised in consolidated profit or loss on a unit of production method over the
estimated useful lives of intangible assets from the date that they are available for use. As the intangible assets are not yet
available for use, no amortisation expenses have been recognised in 2008. Unamortised expenditure relating to that area
of interest is written off in the period that abandonment is decided.
Provision for restoration costs is made at the time when the activities which give rise to the need for restoration occur, and
would form part of the costs of the respective phase of operations. The need for a provision is assessed annually such that full
provision is made by the end of the exploration life of each area.
The ultimate recoupment of costs carried forward for exploration, evaluation and development phases is dependent on the
successful development and commercial exploitation of sale of the respective areas of interest. All costs carried forward are
in respect of areas of interest in the exploration phase and accordingly, production has not commenced.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to
which it relates. All other expenditure is recognised in consolidated profit or loss when incurred.
Mining exploration, evaluation and development expenditure is written down to its recoverable amount if its carrying
amount is greater than its estimated recoverable amount.
o Trade and Other ReceivablesTrade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is
established when there is objective evidence that the Group will not be able to collect all amounts due according to the
original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is
recognised in the profit and loss account.
p Cash and Cash EquivalentsCash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments
with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in
current liabilities on the balance sheet.
Notes to the fiNANciAl stAtemeNts
115CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
q BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs
that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and
commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and
transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net
of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings
using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
r ProvisionsProvisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more
likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably
estimated. Provisions are not recognised for future operating losses.
In respect of the Group’s iron ore mining operations:
i) site restoration
In accordance with the Group’s published environmental policy and applicable legal requirements, the Group has an
obligation to conduct rehabilitation works in respect of disturbed areas comprising the waste rock dumps, open areas,
open pits and abandonment buds. A non-current provision has been made for site restoration commitment with the
corresponding Intangible Assets increased by an equivalent amount.
ii) mining rights
In accordance with the mining right / lease agreements entered into by two subsidiaries of the Company, the Group is
committed to pay a defined royalty if either of the two subsidiaries’ production is less than 6 million tonnes by March 2013.
A non-current provision has been made for this commitment with the corresponding Intangible Assets increased by an
equivalent amount.
s Share CapitalShare capital issued by the Company is recorded at the proceeds received, net of direct issue costs.
t Segment ReportingA business segment is a group of assets and operations engaged in providing products or services that are subject to risks
and returns that are different from those of other business segments. A geographical segment is engaged in providing
products or services within a particular economic environment that is subject to risks and returns that are different from
those of segments operating in other economic environments.
Notes to the fiNANciAl stAtemeNts
116 CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
u Revenue Recognitioni) sales of goods
Revenue arising from the sale of goods is generally recognised on the delivery of goods to customers. Revenue is determined
after deduction of any trade discounts.
Sales arising from the sale of motor vehicles is recognised when the registration document is issued or on delivery of the
vehicle, whichever is earlier. This is taken to be the point in time when the customer has accepted the goods and the related
risks and rewards of ownership. Sales excludes any government taxes and is after deduction of any trade discounts.
ii) Rendering of services
Commission income is recognised when the goods concerned are sold to customers. Revenue arising from the rendering of
repairing services is recognised when the relevant work is completed.
Revenue from the provision of telecommunications services is recognised upon delivery of the service.
iii) sales of properties under development and properties held for sale
Revenue from sales of properties under development is only recognised when the significant risks and rewards of ownership
have been transferred to the buyer. The Group considers that the significant risks and rewards of ownership are transferred
when the buildings contracted for sale are completed and the relevant permits essential for the delivery of the properties have
been issued by the authorities.
Income from properties held for sale is recognised at the date when the sales agreement is signed.
iv) toll income
Toll income is recognised when the service is provided.
v) Rental income
Rental income is recognised on a straight-line basis over the period of the relevant lease.
vi) Dividend income
Dividend income is recognised when the right to receive the dividend is established.
Dividends proposed or declared after their balance sheet date by companies in which the Group has an investment are not
recognised as revenue at the balance sheet date but on the date when the right to receive the dividend is established.
v Financial InstrumentsThe Group classifies its financial assets in the following categories: (i) financial assets at fair value through profit or loss,
(ii) loans and receivables, (iii) available-for-sale financial assets and, (iv) derivative financial instruments. The classification
depends on the purpose for which the financial asset was acquired. Management determines the classification of its financial
assets on initial recognition and re-evaluates this designation at every reporting date.
Purchases and sales of financial assets are recognised on their trade-date – the date on which the Group commits to
purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs for all financial assets
not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from
the investments have expired or have been legally transferred and the Group has transferred substantially all risks and
rewards of ownership.
Notes to the fiNANciAl stAtemeNts
117CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
v Financial Instruments continued
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial
assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the
fair value of the investment below its cost is considered in determining whether the investments are impaired. If any such
evidence exists for available-for-sale investments, the cumulative loss – measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that investment previously recognised in the profit and loss
account – is removed from equity and recognised in the profit and loss account. Impairment losses recognised in the profit
and loss account on equity instruments are not reversed through the profit and loss account.
i) financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or
loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short
term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are
classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance
sheet date.
Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at fair value through
profit or loss’ category are included in the profit and loss account in the period in which they arise.
ii) loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading
the receivable. They are included in current assets, unless maturity is greater than 12 months after the balance sheet date.
These are classified as non-current assets. Loans and receivables are included in debtors, accounts receivable, deposits and
prepayments in the balance sheet.
Loans and receivables and held-to-maturity investments are initially recognised at fair value plus transaction costs and
subsequently carried at amortised cost using the effective interest method.
iii) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of
the other categories. They are included in non-current assets unless management intends to dispose of the investment within
12 months of the balance sheet date.
Available-for-sale investments are carried at fair value, or cost less impairment loss if their fair value cannot be reliably
measured. Gains and losses arising from changes in fair value are recognised in investment revaluation reserve. On the
disposal of the investment or when an investment is determined to be impaired, the cumulative gain or loss previously
recognised in investment revaluation reserve will be transferred to the profit and loss account.
iv) Derivative financial instruments
Derivatives are stated at fair value. The gain or loss on change in fair values is recognised in the profit and loss account unless
the derivative qualifies for hedge accounting. Where a derivative qualifies for hedge accounting and is designated as a cash
flow hedge, the effective part of any unrealised gain or loss on the instrument is recognised directly in hedging reserve and
the ineffective part in the profit and loss account. The cumulative gain or loss associated with the effective part of the cash
flow hedge recorded in hedging reserve will be recognised in the profit and loss account in the same period or periods during
which the transaction it hedges is recognised in the profit and loss account. However, when the forecast transaction that
is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains and losses
previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset.
The deferred amounts are ultimately recognised in cost of goods sold in the case of inventory, or in depreciation in the case
of fixed assets.
Notes to the fiNANciAl stAtemeNts
118 CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
v Financial Instruments continued
iv) Derivative financial instruments continued
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 32. Movements on the
hedging reserve in shareholders’ equity are shown in Note 28. When the remaining maturity of the hedge item is more than
12 months, the full fair value of a hedging derivative is classified as a non-current asset or liability.
A one time loss due to losses on leveraged foreign exchange derivative contracts (some of these contracts still remain with
the Group as at 31 December 2008) which do not qualify for hedge accounting was reflected as a separate charge to the
consolidated profit and loss account for the year ended 31 December 2008. Other gains / losses on financial instruments
relating to the Group’s financial activities, which do not qualify as effective accounting hedges, are dealt with in the net
finance charges in the consolidated profit and loss account.
w Operating LeasesLeases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted
for as operating leases. Rentals payable and receivable under operating leases are accounted for on a straight line basis over
the respective periods of the leases.
x Impairment of AssetsAssets that have an indefinite useful life are tested for impairment annually. Assets that are subject to amortisation are
reviewed for impairment to determine whether there is any indication the carrying value of these assets may not be
recoverable. If such assets are considered to be impaired, the impairment to be recognised in the profit and loss account
is measured by the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately identifiable cash inflows (called cash-generating units).
y InventoriesInventories comprise mainly iron ore, scrap metal, steel, motor vehicles, spare parts, electrical appliances, food and other
trading items. They are valued at the lower of cost and net realisable value. Cost represents the actual cost of purchase or
production and is calculated on the first-in first-out, specific identification or weighted average basis as appropriate. Net
realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
z Foreign CurrenciesThe consolidated accounts are presented in Hong Kong dollars, which is the Company’s functional and presentation
currency. Items included in the financial statements of each of the Group’s entities are measured using the currency of
the primary economic environment in which the entity operates (the ‘functional currency’).
Transactions in foreign currencies are translated into the functional currency at the rates ruling at the transaction dates.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss
account, except when deferred in equity as a qualifying cash flow hedge or net investment hedge.
Assets and liabilities of subsidiary companies, jointly controlled entities and associated companies, together with all other
monetary assets and liabilities expressed in foreign currencies, are translated into Hong Kong dollars at the rates of exchange
ruling at the balance sheet date. Results in foreign currencies are translated at the average rates of exchange ruling during the
year. All resulting exchange differences are recognised as a separate component of equity – exchange fluctuation reserve.
Exchange differences arising from the translation of the net investment in foreign entities, and of financial instruments which
are designated as hedges of such investment, are taken directly to exchange reserve. On the disposal of these investments,
such exchange differences are recognised in the consolidated profit and loss account as part of the profit or loss on disposal.
Notes to the fiNANciAl stAtemeNts
119CITIC Pacific Annual Report 2008
1 Significant Accounting Policies continued
z Foreign Currencies continued
When a gain or loss on a non-monetary item is recognised directly in equity, any translation difference on that gain or loss is
recognised directly in equity. When a gain or loss on a non-monetary item is recognised in the profit and loss account any
translation difference on that gain or loss is recognised in the profit and loss account.
Goodwill and fair value adjustments arising on acquisition of a foreign entity after 1 January 2005 are treated as assets and
liabilities of the foreign entity and translated at the rate of exchange ruling at the balance sheet date. Such differences are
taken directly to exchange reserve.
aa Deferred TaxationThe balance sheet liability method is adopted whereby deferred tax is recognised in respect of temporary differences between
the tax bases of assets and liabilities and their carrying amounts. However, the deferred tax is not accounted for if it arises
from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss. Provision for withholding tax that will arise on the
remittance of retained earnings is only made where there is a current intention to remit such earnings. Deferred tax
assets are recognised to the extent that the future utilisation is probable.
Deferred tax arising from revaluation of the investment properties is recognised on the basis that the recovery of the carrying
amount of the properties would be through use and calculated at the applicable profits tax rate.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on
either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
bb Employee Benefitsi) short-term employee benefits and contributions to defined contribution retirement plans
Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-
monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or
settlement is deferred and the effect would be material, these amounts are stated at their present values.
ii) share-based payments
The Group operates a share option scheme. The fair value of the employee services received in exchange for the grant of the
options is recognised as an expense over the vesting period with a corresponding increase in capital reserve. Fair values of
share option awards, measured at the date of grant of the award, are calculated using a binomial lattice model methodology
that is based on the underlying assumptions of the Black-Scholes model.
The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted.
The fair value excludes the impact of any non-market services and performance vesting conditions (for example, profitability,
sales growth targets and remaining an employee of the entity over a specified time period). Non-market vesting conditions
are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the Group
revises its estimates of the number of options that are expected to become exercisable and recognises the impact of the
revision, if any, in the consolidated profit and loss account.
iii) termination benefits
Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment
or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic
possibility of withdrawal.
Notes to the fiNANciAl stAtemeNts
120 CITIC Pacific Annual Report 2008
2 Critical Accounting Estimates and Judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year are discussed below.
i) investment properties
The fair values of investment properties are determined annually by independent qualified valuers on an open market value
on an existing use basis calculated on the net income allowing for reversionary potential.
In the determination of the fair value, consideration has been given to assumptions that are mainly based on market
conditions existing at the balance sheet date.
ii) impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in
Note 1(x). For the purposes of impairment testing goodwill acquired has been allocated to individual cash-generating units
which are reviewed for impairment based on forecast operating performance and cash flows. The recoverable amount of an
asset or a cash-generating unit is determined based on value-in-use calculations. Cash flow projections are prepared on the
basis of reasonable assumptions reflective of prevailing and future market conditions, and are discounted appropriately.
iii) impairment of assets
The Group has made substantial investments in tangible and intangible assets. The Group considers impairment assessment
as an area requiring extensive application of judgement and estimation. Assets that have an indefinitive useful life are tested
for impairment annually. Other assets are reviewed for impairment when there is an indication that the carrying value of
these assets may not be recoverable. If such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs
to sell and value in use. Such impairment loss is recognised in profit or loss.
Mining operation
The Group’s mining operation is considered as a separate cash generating unit. Whenever events or circumstances indicate an
impairment may have occurred, the Group tests whether assets attributable to the Group’s mining operations have suffered
any impairment. The recoverable amount of the mining operation is determined based on fair value less costs to sell which is
based on cashflow projections that incorporate best estimates of selling prices, ore grades, exchange rates, production rates,
future capital expenditure and production costs over the life of the mine. In line with normal practice in the mining industry,
the cash flow projections are based on long term mine plans covering the expected life of the operation. Therefore, the
projections cover periods well in excess of five years. Assumptions about selling prices, operating costs, exchange rates and
discount rates are particularly important; the determination of the recoverable amount is relatively sensitive to changes in
these important assumptions.
Property, plant and equipment
The Group reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that
the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires
various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired
asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement
of an impairment loss requires a determination of fair value, which is based on the best information available. The Group
derives the required undiscounted cash flow estimates from historical experience and internal business plans. To determine
fair value, the Group uses cash flow estimates discounted at an appropriate discount rate, quoted market prices when
available and independent appraisals, as appropriate.
Notes to the fiNANciAl stAtemeNts
121CITIC Pacific Annual Report 2008
2 Critical Accounting Estimates and Judgements continued
iii) impairment of assets continued
Properties under development
The Group writes down properties under development to their recoverable amount based on the assessment of recoverability
which takes into account cost to completion based on past experience and cash flow estimates discounted at an appropriate
discount rate, quoted market prices when available and independent appraisals, as appropriate. Write downs are recorded
where events or changes in circumstances indicate that the balances may not be realised. The identification of write downs
requires the use of judgment and estimates. Where the expectation is different from the original estimate, the carrying value
of properties under development is adjusted in the period in which such estimate is changed.
Jointly controlled entities and associated companies
The Group regularly reviews investments in jointly controlled entities and associates for impairment based on both
quantitative and qualitative criteria. Such analysis typically includes various estimates and assumptions, the intent and
ability to hold to maturity or until forecasted recovery, the financial health, cash flow projections and future prospects of
the companies.
Debtors, accounts receivables, deposits and prepayments
Impairment losses for bad and doubtful debts are assessed and provided based on regular review of the ageing analysis
and evaluation of collectability. A considerable level of judgement is exercised by the directors when assessing the credit
worthiness and past collection history of each individual customer. An increase or decrease in the impairment loss would
affect the net profit in future years.
iv) Depreciation
Depreciation of operating assets constitutes a substantial operating cost for the Group. The cost of fixed assets is charged
as depreciation expense over the estimated useful lives of the respective assets using the straight-line method. The Group
periodically reviews changes in technology and industry conditions, asset retirement activity and residual values to
determine adjustments to estimated remaining useful lives and depreciation rates.
v) Provision for inventories
The Group reviews the carrying amounts of inventories at each balance sheet date to determine whether the inventories are
carried at lower of cost and net realisable value in accordance with the accounting policy set out in Note 1(y). Management
estimates the net realisable value based on the current market situation and historical experience on similar inventories. Any
change in the assumptions would increase or decrease the amount of inventories write-down or the related reversals of
write-down and affect the Group’s net asset value.
vi) fair value of derivative financial instruments
The Group relies on bank valuations to determine the fair value of derivatives which in turn are determined using various
valuation techniques, including discounted cash flow models and option pricing models. Judgment is required in the
calculation of such valuations. Changes in the underlying assumptions could materially impact profit and loss or equity.
vii) income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the
provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business. Where the final tax outcome is different from the amounts that were
initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such
determination is made.
Recognition of deferred tax assets, which principally relate to tax losses, depends on the management’s expectation of future
taxable profit that will be available against which the tax losses can be utilised. The outcome of their actual utilisation may
be different.
Notes to the fiNANciAl stAtemeNts
122 CITIC Pacific Annual Report 2008
3 Turnover and Revenue
The principal activities of the Company are holding its subsidiary companies, jointly controlled entities and associated
companies (collectively the ‘Investee Companies’), employing staff and raising finance. Revenue generating activities of the
Group are conducted through the Investee Companies. The principal activities of the Investee Companies are set out in
Note 44 to the financial statements.
Turnover of the Group comprises the total invoiced value of goods supplied net of government taxes where applicable,
services rendered to customers, gross proceeds from sale of properties, gross property rental and godown and cold storage
income, fees from toll income and provision of telecommunication services, analysed as follows:
Groupin HK$ million 2008 2007
Sales of goods 41,257 33,768
Services rendered to customers 1,102 831
Properties sales 96 763
Rental income 745 604
Toll income 701 708
Telecommunications 2,486 1,804
Others 33 56
46,420 38,534
123CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
4 Other Income and Net Gains
Groupin HK$ million 2008 2007
Other incomeCommission income, subsidy income and rebates 160 93
Dividend income from other financial assetsListed shares 89 81
Co-operative joint ventures 7 5
256 179
Other net gainsNet gain from disposal of subsidiary company 170 45
Net gain from disposal of jointly controlled entities 422 1
Net gain from disposal of an associated company – 2
Net gain from listing of subsidiary companies, Dah Chong Hong and CITIC 1616 – 4,552
Net gain from sale of other financial assets, mainly listed investments 1,215 –
Others 68 91
1,875 4,691
2,131 4,870
5 (Loss) / Gain from Leveraged Foreign Exchange Contracts
Groupin HK$ million 2008 2007
Leveraged foreign exchange contractsFair value loss on the Novation Contracts immediately before their transfer to CITIC Group (9,796 ) –
Fair value (loss) / gain on other contracts (3,200 ) 22
Termination costs (1,177 ) –
Realised Loss (1,718 ) –
(15,891 ) 22
124 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
5 (Loss) / Gain from Leveraged Foreign Exchange Contracts continued
The Group entered into multiple leveraged Australian dollar (AUD) foreign exchange contracts mainly in the second half
of 2008. These contracts were intended to minimise currency exposure of the Group’s iron ore mining project. Due to
significant movements in the AUD to USD exchange rate, these contracts gave rise to substantial losses and due to their
leveraged features the amount of AUD to be delivered to the Group increased significantly and exceeded the Group’s needs
for AUD. Leveraged foreign exchange contracts with a maximum deliverable amount of A$5.3 billion, being contracts
delivering AUD in excess of the Group’s needs, were novated to CITIC Group (the ‘Novation Contracts’) in December 2008.
Immediately before the transfer of the Novation Contracts on 24 December 2008 the Group reflected a mark to market loss
of HK$9,796 million on those contracts in its profit and loss account and an equal amount of derivative liabilities in its
balance sheet. The Novation Contracts were transferred to CITIC Group for a consideration of HK$9,155 million. The
difference amounting to HK$641 million between the derivative liability and the consideration payable to CITIC Group was
recorded in capital reserve as part of the subscription price paid for the shares of the Company issued to CITIC Group by way
of issuance of a Convertible Bond (refer to Note 27) for further details.
The remaining contracts with a maximum deliverable amount of A$2.9 billion as at 31 December 2008 were retained
to provide for the Group’s future AUD needs. Some of these remaining contracts were restructured during the year into
plain-vanilla forward contracts that qualify as accounting hedges as their maturity matches the need of the business. As at
31 December 2008, unrestructured contracts with a maximum deliverable amount of A$2.0 billion were outstanding and are
intended to be restructured into plain-vanilla forward contracts in 2009.
Leveraged foreign exchange contracts in RMB were used to minimise the currency exposure of the Group’s projects
(including the Group’s iron ore mining project) to fluctuations in RMB. In September 2008, certain of these RMB contracts
were terminated in order to better match the exposures of the Australian mining operation, resulting in termination costs of
approximately HK$197 million. As at 31 December 2008 the remaining outstanding contracts have a maximum notional
amount of RMB 5.3 billion. Leveraged foreign exchange contracts in Euro were used to minimise currency exposure of the
Group’s projects (including the Group’s iron ore mining project) to fluctuations in Euro. All but one of the Euro structured
leveraged contracts (including dual currency contracts) were terminated in 2008 at a cost of approximately HK$627 million
with the final contract terminated in January 2009. Currently Euro exposures are not hedged by the Group.
The total termination costs of the abovementioned contracts and other leveraged foreign exchange contracts amounted to
approximately HK$1.2 billion. The total realised loss of HK$1.7 billion was recognised as a result of taking delivery of foreign
currencies under these contracts and the restructuring of certain contracts.
The fair value of the outstanding leveraged foreign exchange contracts remaining with the Group as at 31 December 2008,
is a loss of HK$3,200 million (2007: gain of HK$22 million) which amounts are included in the respective year end balances
of derivative financial instruments as set out in Note 32. Those leveraged foreign exchange contracts in existence as at
31 December 2007 were either knocked-out and settled during 2008 or were restructured into plain-vanilla forward contracts
that qualify as accounting hedges resulting in a net gain of HK$36 million.
125CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
6 Segment Information
Segment information is presented in respect of the Group’s business and geographical segments. Business segment
information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial
reporting.
a Turnover and Segment ProfitAn analysis of the Group’s turnover and (loss) / profit from consolidated activities and share of results of jointly controlled
entities and associated companies by business is as follows:
Share of results Share of (Loss) / profit from of jointly results of consolidated controlled associated Segment Segment Turnover activities entities companies Group total allocations (loss) / profitin HK$ million 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
By principal activities (Note)Special steel 22,758 18,501 2,170 2,418 53 426 – – 2,223 2,844 – – 2,223 2,844
Property Mainland China 544 1,090 585 248 16 (16 ) – – 601 232 4 4 605 236
Hong Kong and Others 243 231 209 157 – – 62 335 271 492 89 93 360 585
Power generation – – (452 ) (171 ) (282 ) 547 (507 ) 62 (1,241 ) 438 – – (1,241 ) 438
Aviation – – – – – (62 ) (1,407 ) 1,312 (1,407 ) 1,250 – – (1,407 ) 1,250
Civil infrastructure 734 750 498 521 175 132 49 53 722 706 – – 722 706
CITIC 1616 2,486 1,486 400 246 – – (1 ) – 399 246 – – 399 246
Dah Chong Hong 19,496 16,050 684 457 64 53 (11 ) 2 737 512 (93 ) (97 ) 644 415
Other investments 159 426 (144 ) (340 ) 174 264 79 81 109 5 – – 109 5
Other income and net gains – – 2,131 4,870 – – – – 2,131 4,870 – – 2,131 4,870
Change in fair value of investment properties – – 12 1,002 – – – 412 12 1,414 – – 12 1,414
Less: general and administration expenses – – (402 ) (640 ) – – – – (402 ) (640 ) – – (402 ) (640 )
(Loss) / gain from leveraged foreign exchange contracts – – (15,891 ) 22 – – – – (15,891 ) 22 – – (15,891 ) 22
46,420 38,534 (10,200 ) 8,790 200 1,344 (1,736 ) 2,257 (11,736 ) 12,391 – – (11,736 ) 12,391
Net finance charges (596 ) (54 )
Taxation 578 (770 )
(Loss) / profit for the year (11,754 ) 11,567
Note:The current year’s presentation of segment information by business segments has been reclassified to better present the results in line with how management reviews these businesses. Comparative figures have been reclassified to conform with the current year’s presentation.
The presentation of segment turnover is the same as the consolidated turnover except for segment allocations attributable to the property segment as disclosed above.
126 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
6 Segment Information continued
An analysis of the Group’s turnover by geographical area is as follows:
Groupin HK$ million 2008 2007
By geographical areaMainland China 33,125 27,360
Hong Kong 10,968 8,959
Overseas 2,327 2,215
46,420 38,534
b Assets and LiabilitiesAn analysis of the Group’s segment assets and liabilities by business segment is as follows:
Investments Investments Segment in jointly in associated Segment assets controlled entities companies liabilities Totalin HK$ million 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
By principal activitiesSpecial steel 24,286 17,237 4,444 4,252 118 – (5,751 ) (5,381 ) 23,097 16,108
Iron ore mining 20,976 9,780 – – – – (6,074 ) (702 ) 14,902 9,078
Property Mainland China 16,879 11,762 5,650 4,324 – – (1,878 ) (1,250 ) 20,651 14,836
Hong Kong 6,407 6,934 – – 4,696 5,058 (124 ) (257 ) 10,979 11,735
Power generation 358 147 3,724 4,017 1,775 2,245 (6 ) (32 ) 5,851 6,377
Aviation – 585 – – 7,982 10,104 – – 7,982 10,689
Civil infrastructure 931 1,030 1,429 1,328 104 112 (34 ) (31 ) 2,430 2,439
CITIC 1616 1,571 1,047 – – 5 – (747 ) (472 ) 829 575
Dah Chong Hong 9,080 6,528 234 165 148 138 (2,816 ) (2,185 ) 6,646 4,646
Other investments 781 7,127 5,659 3,360 256 284 (129 ) (183 ) 6,567 10,588
Segment assets / (liabilities) 81,269 62,177 21,140 17,446 15,084 17,941 (17,559 ) (10,493 ) 99,934 87,071
Corporate 19,724 8,664 – – – – (63,634 ) (28,959 ) (43,910 ) (20,295 )
Provision for taxation (274 ) (590 )
Net deferred tax assets / (liabilities) 257 (1,487 )
56,007 64,699
An analysis of the Group’s segment assets by geographical area is as follows:
Groupin HK$ million 2008 2007
By geographical areaMainland China 46,348 32,499
Hong Kong 12,718 18,707
Overseas – Australia 20,979 9,780
– Others 1,224 1,191
81,269 62,177
127CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
7 (Loss) / Profit from Consolidated Activities
Groupin HK$ million 2008 2007
The (loss) / profit from consolidated activities is arrived at after crediting Rental income from investment properties Gross income 745 586
Less: direct outgoings (92 ) (80 )
653 506
other operating leases 124 133
write back of impairment loss on properties held for development 253 –
Groupin HK$ million 2008 2007
And after chargingCost of inventories 35,206 29,029
The following expenses which are included in cost of sales, distribution and selling expenses and other operating expenses Staff costs 2,359 2,410
Depreciation of property, plant and equipment 940 1,045
Amortisation of leasehold land 44 42
Amortisation of intangible assets 107 98
Other operating expenses 3,028 3,733
Auditor’s remuneration 34 26
Contributions to staff retirement schemes 95 107
Impairment losses provision on (Note) Other financial assets 177 99
Property, plant and equipment 2 103
Property under development – 353
Jointly controlled entities and associated companies 403 282
Trade and other receivable 41 26
Intangible assets 27 –
Operating lease rentals land and buildings 252 205
128 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
7 (Loss) / Profit from Consolidated Activities continued
Note
in HK$ million 2008 2007
Impairment losses by segmentSpecial steel 2 73
Property – 353
Power generation* 449 128
CITIC 1616 14 –
Dah Chong Hong 26 8
Other investments 159 301
650 863
* Certain power generation businesses recorded losses in 2008. The impairment provision on the power generation segment is evaluated against the values in use based on the estimated cashflows of the respective power plants in operation discounted at a rate of 10%.
The Group’s total future minimum lease payments receivable under non-cancellable operating leases are as follows:
Groupin HK$ million 2008 2007
Within 1 year 731 564
After 1 year but within 5 years 763 633
After 5 years 94 169
1,588 1,366
8 Net Finance Charges
Groupin HK$ million 2008 2007
Finance chargesInterest expenseBank loans and overdrafts wholly repayable within five years 1,124 526
Bank loans not wholly repayable within five years 427 237
Other loans wholly repayable within five years 268 201
Other loans not wholly repayable within five years 14 21
1,833 985
Amount capitalised (1,086 ) (680 )
747 305
Exchange gain (192 ) (31 )
Other finance charges 47 39
Fair value losses / (gains) on financial instruments Interest rate instruments 394 38
Foreign exchange forward instruments 99 (71 )
1,095 280
Finance incomeInterest income (499 ) (226 )
596 54
The capitalisation rates applied to funds borrowed are between 4.1% and 5.4% per annum (2007: 6.1% and 6.8% per annum).
129CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
9 Taxation
Hong Kong profits tax is calculated at the rate of 16.5% (2007: 17.5%) on the estimated assessable profit for the year. Overseas
taxation is calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the countries in
which the Group operates. Tax provisions are reviewed regularly to take into account changes in legislation, practice and
status of negotiations. Details are as follows:
Groupin HK$ million 2008 2007
Current taxationHong Kong profits tax 120 308
Overseas taxation 570 450
Deferred taxation (Note 33)Changes in fair value of investment properties 51 173
Origination and reversal of other temporary differences arising from leveraged foreign exchange contracts of Australian subsidiary company (1,259 ) –
others (27 ) 19
Effect of tax rate change (33 ) (180 )
(578 ) 770
Taxation on the Group’s (loss) / profit before taxation differs from the theoretical amount that would arise using the Hong
Kong profits taxation rate as follows:
Groupin HK$ million 2008 2007
(Loss) / profit before taxation (12,332 ) 12,337
Less: share of results of jointly controlled entities (200 ) (1,344 )
associated companies 1,736 (2,257 )
(10,796 ) 8,736
Calculated at Hong Kong taxation rate of 16.5% (2007: 17.5%) (1,781 ) 1,529
Effect of different taxation rates in other jurisdictions (657 ) 84
Effect of non-taxable income and non-deductible expenses arising from leveraged foreign exchange contracts 1,699 –
others 120 (761 )
Utilisation of tax losses previously unrecognised and net of tax losses not recognised 65 8
Over provision in prior years (31 ) (6 )
Effect of tax rate change (33 ) (180 )
Others 40 96
Taxation (578 ) 770
130 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
10 (Loss) / Profit Attributable to Shareholders of the Company
The Group’s (loss) / profit attributable to shareholders of the Company is recorded in the accounts of the Company to the
extent of a loss of HK$10,302 million (2007: profit of HK$5,713 million).
11 Dividends
in HK$ million 2008 2007
2007 Final dividend paid: HK$0.80 (2006: HK$0.80) per share 1,757 1,767
2007 Special dividend paid: HK$Nil (2006: HK$0.30) per share – 662
1,757 2,429
Interim 2008 Interim dividend paid: HK$0.30 (2007: HK$0.40) per share 658 885
2008 Special dividend paid: HK$Nil (2007: HK$0.20) per share – 442
Final 2008 Final dividend proposed: HK$Nil (2007: HK$0.80) per share – 1,770
658 3,097
Dividend per share (HK$) 0.30 1.40
12 (Loss) / Earnings per Share
The calculation of (loss) / earnings per share is based on the consolidated loss attributable to shareholders of HK$12,662
million (2007: profit of HK$10,843 million).
The basic (loss) / earnings per share is based on the weighted average number of 2,227,717,822 shares in issue during the year
(2007: 2,207,542,455 shares in issue). The diluted earnings per share for 2007 is based on 2,213,084,305 shares which is the
weighted average number of shares in issue during 2007 plus the weighted average number of 5,541,850 shares deemed to be
issued at no consideration if all outstanding options had been exercised. Diluted loss per share for 2008 is the same as the
basic loss per share as the potential additional ordinary shares are anti-dilutive.
131CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
13 Directors’ Emoluments
The remuneration of each Director for the year ended 31 December 2008 is set out below:
Salaries, allowancesin HK$ million and benefits Discretionary Retirement 2008 2007Name of Director Fees in kind bonuses benefits Total Total
Larry Yung Chi Kin# 0.15 3.68 – 0.01 3.84 66.99
Henry Fan Hung Ling# 0.15 3.44 – 0.01 3.60 56.67
Peter Lee Chung Hing# 0.15 2.10 – 0.10 2.35 44.35
Carl Yung Ming Jie# 0.15 1.63 – 0.08 1.86 16.57
Vernon Francis Moore# 0.15 2.06 – 0.01 2.22 11.93
Li Shilin# 0.15 0.56 – – 0.71 5.55
Liu Jifu# 0.15 0.65 – 0.01 0.81 13.21
Milton Law Ming To# 0.15 1.79 – 0.08 2.02 16.89
Wang Ande# 0.15 1.56 – – 1.71 16.43
Steve Kwok Man Leung# 0.11 1.35 – 0.06 1.52 –
Chang Zhenming 0.20 – – – 0.20 4.06
Willie Chang 0.45 – – – 0.45 0.30
Hamilton Ho Hau Hay 0.20 – – – 0.20 0.15
Alexander Reid Hamilton 0.65 – – – 0.65 0.30
Hansen Loh Chung Hon 0.40 – – – 0.40 0.25
Norman Ho Hau Chong 0.25 – – – 0.25 0.20
André Desmarais 0.20 – – – 0.20 0.15
Norman Yuen Kee Tong – – – – – 0.10
Leslie Chang Li Hsien 0.12 1.70 – 0.07 1.89 23.01
Chau Chi Yin 0.12 1.53 – 0.06 1.71 16.96
4.05 22.05 – 0.49 26.59 294.07
None of the five highest paid individuals of the Group during the year whose emoluments are disclosed in Note 14 are
directors. In 2007, the five highest paid individuals were directors and their emoluments are reflected in the analysis
presented above.
During the year, no share options were granted (2007: 11,100,000 share options) to directors of the Company under the
CITIC Pacific Share Incentive Plan 2000.
Mr Steve Kwok Man Leung was appointed during the year.
Mr Leslie Chang Li Hsien and Mr Chau Chi Yin resigned during the year.
Mr Norman Yuen Kee Tong resigned during 2007.
The executive directors marked ‘#’ above are considered as key management personnel of the Group.
132 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
14 Individuals with Highest Emoluments
The aggregate emoluments of the five highest paid individuals during the year were as follows:
in HK$ million 2008 2007
Salaries and other emoluments 17.90 –
Discretionary bonuses 15.11 –
Retirement Scheme Contribution 0.49 –
33.50 –
The numbers of these individuals with emoluments within the following bands were:
2008 2007
5,000,001 – 6,000,000 1 –
6,000,001 – 7,000,000 2 –
7,000,001 – 8,000,000 2 –
15 Retirement Benefits
Hong Kong employees are offered the option to enrol in one of the MPF Master Trust Schemes under the CITIC Group
MPF Scheme – the Fidelity Retirement Master Trust, the Hang Seng Mandatory Provident Fund and the RCM Mandatory
Provident Fund. All these master trust schemes are administered in accordance with the terms and provisions of respective
trust deed and are subject to the Mandatory Provident Fund Schemes Ordinance.
Employees of the Group’s subsidiaries in mainland China and other locations are required to participate in defined
contribution retirement schemes administered and operated by the respective local authorities and contributions are
made according to the local mandatory requirements.
133CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
16 Fixed Assets
a Group
Property, plant and equipment
Properties Self-used Plant and Construction under properties machinery in progress Others Investment development Leaseholdin HK$ million (Note ii) (Note ii) (Note i & iii) (Note iv) Sub-total properties (Note i) land Total
Cost or valuation
At 1 January 2008, as restated 4,869 7,658 2,484 2,640 17,651 10,895 4,699 1,959 35,204
Exchange adjustments 193 425 49 28 695 364 233 56 1,348
Additions 188 547 10,141 462 11,338 5 5,693 402 17,438
Acquisition of subsidiary companies 422 65 6 220 713 36 – 96 845
Disposals (301 ) (453 ) (44 ) (185 ) (983 ) (1 ) (15 ) (42 ) (1,041 )
Change in fair value of investment properties – – – – – 12 – – 12
Transfer to properties held for sale – – – – – – (367 ) – (367 )
Reclassification 12 5 (19 ) 1 (1 ) – (172 ) 173 –
Transfer to self-used properties / leasehold land 101 – – – 101 (143 ) – 42 –
Transfer upon completion 74 1,268 (1,358 ) 16 – 62 (62 ) – –
At 31 December 2008 5,558 9,515 11,259 3,182 29,514 11,230 10,009 2,686 53,439
Accumulated depreciation, amortisation and impairment
At 1 January 2008, as restated 977 2,647 90 1,783 5,497 – 411 318 6,226
Exchange adjustments 59 167 5 16 247 – 4 4 255
Charge for the year 164 456 – 320 940 – – 44 984
Depreciation capitalised to construction in progress – 142 – 14 156 – – – 156
Acquisition of subsidiary companies 44 19 – 66 129 – – 2 131
Written back on disposals (61 ) (245 ) (36 ) (142 ) (484 ) – (1 ) (3 ) (488 )
Impairment loss 1 1 – – 2 – – – 2
Written back of impairment loss – – – – – – (253 ) – (253 )
Reclassification (10 ) 46 (36 ) (1 ) (1 ) – – 1 –
At 31 December 2008 1,174 3,233 23 2,056 6,486 – 161 366 7,013
Net book valueAt 31 December 2008 4,384 6,282 11,236 1,126 23,028 11,230 9,848 2,320 46,426
Represented byCost 5,558 9,515 11,259 3,182 29,514 – 10,009 2,686 42,209
Valuation – – – – – 11,230 – – 11,230
5,558 9,515 11,259 3,182 29,514 11,230 10,009 2,686 53,439
134 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
16 Fixed Assets continued
a Group continued
Property, plant and equipment
Properties As restated Construction under Self-used Vehicular Plant and in progress Others As restated Investment development Leasehold As restatedin HK$ million properties tunnel machinery (Note iii) (Note iv) Sub-total properties (Note i) land Total
Cost or valuation
At 1 January 2007, as previously reported 4,260 2,000 6,622 890 2,160 15,932 9,604 2,753 1,991 30,280
Adoption of HK(IFRIC)-Int 12 – (2,000 ) – – – (2,000 ) – – – (2,000 )
At 1 January 2007, as restated 4,260 – 6,622 890 2,160 13,932 9,604 2,753 1,991 28,280
Exchange adjustments 245 – 564 67 2 878 385 141 70 1,474
Additions others 172 – 657 2,528 137 3,494 – 1,851 358 5,703
Disposals through disposal of subsidiary companies – – (15 ) – (231 ) (246 ) – – – (246 )
others (29 ) – (132 ) – (186 ) (347 ) (27 ) (24 ) (238 ) (636 )
Change in fair value of investment properties – – – – – – 1,002 – – 1,002
Transfer to assets held for sale (37 ) – – – – (37 ) – – (336 ) (373 )
Transfer upon completion 258 – (38 ) (1,001 ) 758 (23 ) (69 ) (22 ) 114 –
At 31 December 2007 4,869 – 7,658 2,484 2,640 17,651 10,895 4,699 1,959 35,204
Accumulated depreciation, amortisation and impairment
At 1 January 2007, as previously reported 770 898 1,946 71 1,654 5,339 – 41 279 5,659
Adoption of HK(IFRIC)-Int 12 – (898 ) – – – (898 ) – – – (898 )
At 1 January 2007, as restated 770 – 1,946 71 1,654 4,441 – 41 279 4,761
Exchange adjustments 56 – 206 6 15 283 – 3 4 290
Charge for the year 170 – 564 – 290 1,024 – 21 42 1,087
Disposal of subsidiary companies – – (7 ) – (116 ) (123 ) – – – (123 )
Written back on disposals (16 ) – (89 ) – (114 ) (219 ) – (7 ) – (226 )
Impairment loss 6 – 68 13 16 103 – 353 – 456
Transfer to other assets (4 ) – (46 ) – 38 (12 ) – – (7 ) (19 )
Reclassification (5 ) – 5 – – – – – – –
At 31 December 2007 977 – 2,647 90 1,783 5,497 – 411 318 6,226
Net book valueAt 31 December 2007 3,892 – 5,011 2,394 857 12,154 10,895 4,288 1,641 28,978
Represented byCost 4,869 – 7,658 2,484 2,640 17,651 – 4,699 1,959 24,309
Valuation – – – – – – 10,895 – – 10,895
4,869 – 7,658 2,484 2,640 17,651 10,895 4,699 1,959 35,204
135CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
16 Fixed Assets continued
a Group continued
Notes:i) Interest capitalised in properties under development and construction in progress amounts to HK$242 million (2007: HK$188 million) and HK$221 million
(2007: HK$Nil) respectively.
ii) As at 31 December 2008, certain of the Group’s properties under development, self-used properties and plant and machinery with an aggregate carrying value of HK$320 million (2007: HK$11 million) were pledged to secure loan and banking facilities granted to certain subsidiary companies.
iii) Construction in progress comprises the development of an iron ore mine in Western Australia, and expansion of the special steel mills.
iv) Other property, plant and equipment comprise traffic equipment, cargo lighters, computer installations, telecommunications equipment, motor vehicles and furniture, fixtures and equipment.
v) Capital commitments of the Group in respect of fixed assets:
in HK$ million 2008 2007
Authorised but not contracted for property, plant and equipment, properties under development and leasehold land 263 254
Contracted but not provided for property, plant and equipment, properties under development and leasehold land 23,955 21,147
Groupin HK$ million 2008 2007
Additions of fixed assets by segmentSpecial steel 5,235 1,062
Iron ore mining 6,045 1,990
Property 5,581 2,161
Civil infrastructure 7 56
CITIC 1616 124 62
Dah Chong Hong 438 360
Other investments 8 12
17,438 5,703
Addition of fixed assets by geographical areaMainland China 10,811 2,876
Hong Kong 582 837
Overseas 6,045 1,990
17,438 5,703
Depreciation and amortisation by segmentSpecial steel 619 712
Property 73 91
Civil infrastructure 4 4
CITIC 1616 99 110
Dah Chong Hong 183 157
Other investments 6 13
984 1,087
136 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
16 Fixed Assets continued
b Company
Motor vehicles, equipment, furniture and fixturesin HK$ million 2008 2007
CostAt 1 January 106 103
Additions 3 7
Disposals – (4 )
At 31 December 109 106
Accumulated depreciation
At 1 January 87 79
Charge for the year 6 12
Written back on disposals – (4 )
At 31 December 93 87
Net book valueAt 31 December 16 19
c The tenure of the properties of the Group is as follows:
Self-used Investment Properties under properties properties development Leasehold land Totalin HK$ million 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Leasehold properties heldIn Hong KongLeases of over 50 years 23 23 852 858 – – – – 875 881
Leases of between 10 to 50 years 1,046 1,046 3,929 4,057 81 77 1,114 1,114 6,170 6,294
Leases of less than 10 years 16 20 – – – – – – 16 20
In mainland ChinaLeases of over 50 years 141 32 1,499 1,384 5,251 3,174 – – 6,891 4,590
Leases of between 10 to 50 years 4,087 3,506 4,479 4,214 4,677 1,448 1,572 845 14,815 10,013
Leases of less than 10 years 26 24 – – – – – – 26 24
Properties held overseasFreehold 219 218 471 382 – – – – 690 600
5,558 4,869 11,230 10,895 10,009 4,699 2,686 1,959 29,483 22,422
137CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
16 Fixed Assets continued
d Property valuationInvestment properties were revalued at 31 December 2008 by the following independent, professionally qualified valuers.
Properties located in Valuers
Hong Kong and Shanghai Knight Frank Petty Limited
Japan Tekko Building Co., Limited
e Fixed assets and properties held for sale under current assets of the Group let under operating leases to generate rental
income are as follows:
Other Fixed Properties Investment Self-used fixed assets held forin HK$ million properties properties assets total sale
Cost or valuation 11,230 6 217 11,453 310
Accumulated depreciation / amortisation – (2 ) (123 ) (125 ) (64 )
Net book value at 31 December 2008 11,230 4 94 11,328 246
Depreciation charges / amortisation charges for the year – – 34 34 3
Cost or valuation 10,895 22 212 11,129 310
Accumulated depreciation / amortisation – (2 ) (119 ) (121 ) (61 )
Net book value at 31 December 2007 10,895 20 93 11,008 249
Depreciation charges / amortisation charges for the year – – 32 32 3
17 Subsidiary Companies
Companyin HK$ million 2008 2007
Unlisted shares, at cost less impairment losses 1,101 986
Amounts due by subsidiary companies (Note) 63,925 56,076
65,026 57,062
Particulars of the principal subsidiary companies are shown in Note 44.
Note: Amounts due by subsidiary companies and amounts due to subsidiary companies are interest bearing at market rates except for amounts due by subsidiary companies of approximately HK$41,137 million (2007: HK$42,888 million) and amounts due to subsidiary companies of approximately HK$6,304 million (2007: HK$6,113 million), which are non-interest bearing. These loans have no fixed repayment terms and were not in default or impaired except for a provision for impairment loss of HK$1,198 million was made in 2008 (2007: HK$Nil).
138 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
18 Jointly Controlled Entities
Groupin HK$ million 2008 2007
Share of net assets 14,333 13,903
Goodwill and intangible assets At 1 January 512 533
Additions (Note a) 1,574 18
Disposal – (39 )
Amortisation (4 ) –
Exchange differences 137 –
At 31 December 2,219 512
16,552 14,415
Loans due from jointly controlled entities (Note c) 4,589 3,207
Loans due to jointly controlled entities (Note c) (1 ) (176 )
21,140 17,446
Companyin HK$ million 2008 2007
Unlisted shares, at cost 4,244 3,687
Loans due from jointly controlled entities 1,061 504
Loans due to jointly controlled entities – (175 )
5,305 4,016
Note:a. During the year, the Group acquired a 30% interest in a jointly controlled entity, Shangdong Xin Ju Long Energy Co. Ltd. which owns a coal mine in
Shangdong Province, China, for a consideration of RMB 1.56 billion, equivalent to approximately HK$1,766 million.
b. Jointly controlled entities include the Western Harbour Tunnel Company Limited (‘WHTCL’) whose year end is 31 July which is not coterminous with the Group’s year end. The results of certain jointly controlled entities (including WHTCL) have been equity accounted for based on their unaudited accounts.
c. Loans due from jointly controlled entities and loans due to jointly controlled entities are interest bearing at market rates except for loans to jointly controlled entities of approximately HK$1,423 million (2007: HK$1,074 million), which are non-interest bearing. These loans have no fixed repayment terms and were not in default or impaired except for a provision for impairment loss of HK$132 million in 2007.
d. The following amounts represent the Group’s share of the assets and liabilities, and revenue and results of jointly controlled entities and are included in the consolidated balance sheet and profit and loss account using the equity method:
in HK$ million 2008 2007
AssetsNon-current assets 23,087 20,409
Current assets 18,399 16,328
41,486 36,737
LiabilitiesNon-current liabilities (13,335 ) (10,038 )
Current liabilities (13,583 ) (11,786 )
(26,918 ) (21,824 )
Net assets 14,568 14,913
Revenue 20,524 15,532
Expenses (20,254 ) (13,860 )
270 1,672
Taxation (97 ) (126 )
Profit for the year 173 1,546
Share of jointly controlled entities’ capital commitments (Note) contracted but not provided for 1,285 378
Note: Group’s attributable portion for capital and loans to the respective jointly controlled entities have been fully contributed.
e. Particulars of the principal jointly controlled entities are shown in Note 44.
139CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
19 Associated Companies
Groupin HK$ million 2008 2007
Share of net assets 11,280 13,768
Goodwill At 1 January 1,439 1,444
Disposal (1 ) (5 )
Exchange differences 1 –
At 31 December 1,439 1,439
Loans due from associated companies (Note b) 2,375 2,746
Loans due to associated companies (Note b) (10 ) (12 )
15,084 17,941
Investment at costUnlisted shares 5,051 4,744
Shares listed in Hong Kong 6,247 6,252
11,298 10,996
Market value of listed shares 5,998 14,033
Companyin HK$ million 2008 2007
Investment at costUnlisted shares 2,197 2,197
Shares listed in Hong Kong 931 931
3,128 3,128
Loans due from associated companies 2,432 2,513
Loans due to associated companies (9 ) (9 )
5,551 5,632
Market value of listed shares 624 1,461
Dividend income from associated companies during the year is as follows:
Groupin HK$ million 2008 2007
Listed associated companies 426 392
Unlisted associated companies 349 399
775 791
Note:a. Associated companies includes the Hong Kong Resort Company Limited (‘HKR’) whose year end is 31 March which is not coterminous with the Group’s
year end. The results of certain associated companies including HKR have been equity accounted for based on their management accounts for the years ended 31 December 2007 and 2008.
b. Loans due from associated companies and loans due to associated companies are interest bearing at market rates except for loans due to associated companies of amount of approximately HK$9 million (2007: HK$9 million), which are non-interest bearing. These loans have no fixed repayment terms and were not in default or impaired except for a provision for impairment loss of HK$24 million provided in 2007 for the loans due from an associated company.
c. Particulars of the principal associated companies are shown in Note 44.
140 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
19 Associated Companies continued
Summarised financial information of the associated companies on a gross basis:
Groupin HK$ million 2008 2007
Assets 208,489 207,747
Liabilities 151,385 136,952
Revenue 110,001 95,778
(Loss) / profit (10,373 ) 10,000
20 Other Financial Assets
Groupin HK$ million 2008 2007
Available for sale investmentsListed investments, at fair value Shares listed in Hong Kong 683 6,991
Shares listed overseas 3 35
686 7,026
Co-operative joint venturesUnlisted investments, at fair value – 69
Amounts due by co-operative joint ventures – 3
– 72
OthersUnlisted investmentsShares, at cost 11 26
Loans receivable 366 378
1,063 7,502
Particulars of the principal co-operative joint ventures are shown in Note 44.
Other financial assets are denominated in the following currencies:
Groupin HK$ million 2008 2007
Hong Kong dollar 690 7,049
Renminbi 370 418
Other currencies 3 35
1,063 7,502
141CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
21 Intangible Assets
Goodwill Intangible assets Mining Vehicularin HK$ million assets tunnel Others Total
CostAt 1 January 2008, as restated 639 2,984 2,000 – 5,623
Exchange adjustment 9 (10 ) – 1 –
Additions – 3,924 * – 42 3,966
Acquisition of subsidiaries 318 – – 222 540
At 31 December 2008 966 6,898 2,000 265 10,129
Accumulated amortisation and impairment lossesAt 1 January 2008, as restated 25 – 996 – 1,021
Exchange adjustment – (5 ) – – (5 )
Charge for the year – – 102 5 107
Impairment loss – 26 – 1 27
At 31 December 2008 25 21 1,098 6 1,150
Net book valueAt 31 December 2008 941 6,877 902 259 8,979
CostAt 1 January 2007, as previously reported 1,146 1,865 – – 3,011
Adoption of HK(IFRIC)-Int 12 – – 2,000 – 2,000
De-recognition of goodwill (Note) (507 ) – – – (507 )
At 1 January 2007, as restated 639 1,865 2,000 – 4,504
Additions – 1,119 – – 1,119
At 31 December 2007, as restated 639 2,984 2,000 – 5,623
Accumulated amortisation and impairment lossesAt 1 January 2007, as previously reported 25 – – – 25
Adoption of HK(IFRIC)-Int 12 – – 898 – 898
At 1 January 2007, as restated 25 – 898 – 923
Charge for the year – – 98 – 98
31 December 2007, as restated 25 – 996 – 1,021
Net book valueAt 31 December 2007 614 2,984 1,004 – 4,602
* Including site restoration and mining rights provisions of HK$734 million, for details see Note 34.
142 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
21 Intangible Assets continued
Analysed by:
2008 2007 Goodwill Intangible assets Goodwill Intangible assets Mining Vehicular Mining Vehicularin HK$ million assets tunnel Others assets tunnel Others
Special steel 66 – – – 57 – – –
Iron ore mining – 6,877 – – – 2,984 – –
Property Mainland China 297 – – – 297 – – –
Civil infrastructure 7 – 902 – 7 – 1,004 –
CITIC 1616 288 – – 18 83 – – –
Dah Chong Hong 283 – – 241 170 – – –
941 6,877 902 259 614 2,984 1,004 –
Note: Goodwill and a related deferred tax liability of HK$507 million arising in respect of the Group’s Australian iron ore mine acquisition in 2006 have been restated as at 1 January 2007 as it was assessed that the mining right was deductible at the time of acquisition. This restatement has no impact on net profit / loss or net assets.
22 Non-Current Deposits
Groupin HK$ million 2008 2007
Non–current deposits represented deposit payments for Construction of cargo ships 3,754 2,053
Land acquisitions 339 1,444
Acquisition and construction of other property, plant and equipment; mainly in relation to the Group’s steel plant new phases and the Australian iron ore mining project 4,616 2,226
8,709 5,723
23 Other Assets Held for Sale
As at 31 December 2007, an interest in Air Cargo China, a jointly controlled entity in PRC was presented as an asset held for
sale following the approval of the Group’s management to dispose of the interest, which disposal was completed in 2008.
As at 31 December 2007, a property situated in Hong Kong was classified as an asset held for sale and carried at the lower
of its carrying amount and fair value less costs to sell, following the approval of the Group’s management to dispose of the
property, which disposal was completed in 2008.
143CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
24 Inventories
Groupin HK$ million 2008 2007
Raw materials 1,350 1,977
Work-in-progress 676 947
Finished goods 3,407 2,971
Others 172 87
5,605 5,982
An amount of HK$353 million (2007: HK$68 million) for write-down of inventories to net realisable value has been included
in cost of sales in the profit and loss account.
25 Debtors, Accounts Receivable, Deposits and Prepayments
Group Companyin HK$ million 2008 2007 2008 2007
Trade debtors and bills receivable agedWithin 1 year 5,281 4,196 – –
Over 1 year 56 56 – –
5,337 4,252 – –
Accounts receivable, deposits and prepayments 4,594 3,789 190 278
9,931 8,041 190 278
Note:i) Trade debtors are net of provision and the ageing is classified based on invoice date.
ii) Each business unit has its own defined credit policy.
iii) The carrying amounts of debtors, accounts receivable, deposits and prepayments approximates their fair value.
iv) Accounts receivable, deposits and prepayments include amounts due from jointly controlled entities of HK$181 million (2007: HK$138 million), which are unsecured, interest free and recoverable on demand, except for an amount of HK$1.3 million (2007: HK$1 million) which is interest bearing, and amounts due from associated companies of HK$27 million (2007: HK$90 million) which are unsecured, interest free and recoverable on demand.
As of 31 December 2008, trade receivables of HK$166 million (2007: HK$560 million) were past due but not impaired. These
relate to a number of independent customers which have no recent history of default. The ageing analysis of these trade
receivables is as follows:
in HK$ million 2008 2007
3 to 6 months 131 528
Over 6 months 35 32
166 560
144 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
25 Debtors, accounts receivable, deposits and prepayments continued
Movements on the provision for impairment of trade receivables are as follows:
in HK$ million 2008 2007
At 1 January 83 207
Exchange adjustments 6 13
Provision for impairment loss 41 26
Receivables written off during the year (4 ) (158 )
Unused amounts reversed – (5 )
Through acquisition of subsidiary 15 –
At 31 December 141 83
The creation and release of provision for impairment losses has been included in other operating expenses in the
consolidated profit and loss account. Amounts charged to the provision account are generally written off when there
is no expectation of recovering additional cash.
As of 31 December 2008, trade receivables of HK$162 million (2007: HK$91 million) were individually determined to be
impaired. The individually impaired receivables mainly relate to customers which are in an unexpected difficult economic
situation. It was assessed that a portion of such receivables is expected to be recovered. Consequently, specific provision
for impairment loss of HK$91 million (2007: HK$60 million) was recognised. The Group does not hold any collateral over
these balances.
Accounts receivable, deposits and prepayments do not contain impaired assets.
26 Creditors, Accounts Payable, Deposits and Accruals
Group Companyin HK$ million 2008 2007 2008 2007
Trade creditors and bills payable agedWithin 1 year 5,517 4,532 – –
Over 1 year 424 329 – –
5,941 4,861 – –
Accounts payable, deposits and accruals 7,559 5,800 300 153
13,500 10,661 300 153
Note: The carrying amounts of creditors, accounts payable, deposits and accruals approximate their fair value.
145CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
27 Share Capital
Number of shares of HK$0.40 each HK$ million
AuthorisedAt 1 January 2007 and 2008 3,000,000,000 1,200
Increase during the year 3,000,000,000 1,200
At 31 December 2008 6,000,000,000 2,400
Issued and fully paidAt 1 January 2007 2,195,604,160 878
Issue of shares pursuant to the Plan (ii) 19,336,000 8
Repurchased during the year (iii) (2,813,000 ) (1 )
At 31 December 2007 2,212,127,160 885
At 1 January 2008 2,212,127,160 885
Issue of shares during the year (i) & (ii) 1,453,468,000 581
Repurchased during the year (iii) (19,321,000 ) (8 )
At 31 December 2008 3,646,274,160 1,458
Changes during the year:
i) On 24 December 2008, a Convertible Bond was issued by the Company to CITIC Group with an aggregate principal
amount of HK$11.625 billion. This bond was immediately converted in full into shares of the Company on issuance.
Following the conversion, an aggregate of 1,453,125,000 shares of the Company at a price of HK$8.00 per share were allotted
and issued to certain subsidiaries of CITIC Group which became the ultimate holding company of the Company holding
an approximately 57.56% interest in the Company. The consideration for 1,453,125,000 shares of the Company (being
HK$11.625 billion) was paid as to HK$2.47 billion in cash with the remaining amount being set off against the amount
payable by the Company to CITIC Group in respect of the novation of certain AUD leveraged foreign exchange contracts
entered into by the Group (see Note 5).
ii) During the year, the Company issued and allotted a total of 343,000 shares at HK$22.10 per share upon the exercise of
share options which were granted under the Plan.
iii) During the year, the Company repurchased a total of 19,321,000 of its own shares on The Stock Exchange of Hong Kong
Limited, all of which have been cancelled, as follows:
Number of shares Total purchase Purchase price per share repurchased prices Highest LowestMonth / Year HK$ million HK$ HK$
January 2008 15,484, 000 545 37.90 32.25
June 2008 2,837,000 84 30.40 28.50
September 2008 1,000,000 25 25.55 24.90
19,321,000 654
146 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
27 Share Capital continued
Share Option Plan:Under the CITIC Pacific Share Incentive Plan 2000 (‘the Plan’) adopted on 31 May 2000, the Board may invite any director,
executive or employee of the Company or any of its subsidiary companies to subscribe for options over the Company’s shares
on payment of HK$1 per acceptance. The subscription price determined by the Board will be at least the higher of (i) the
closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets on the date of grant; (ii) the
average closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets for the five business
days immediately preceding the date of grant and (iii) the nominal value of the Company’s shares. The maximum number of
shares over which options may be granted under the Plan shall not exceed 10% of (i) the issued share capital of the Company
from time to time or (ii) the issued share capital of the Company as at the date of adopting the Plan, whichever is the lower.
Outstanding balance
Closing price Number Percentage Exercise before At 31 At 31 of options of the issued price grant date December DecemberGrant date granted share capital HK$ HK$ 2008 2007
28 May 2002 11,550,000 0.32% 18.20 18.10 – –
1 November 2004 12,780,000 0.35% 19.90 19.90 4,914,000 4,914,000
20 June 2006 15,930,000 0.44% 22.10 22.50 7,996,000 8,339,000
16 October 2007 18,500,000 0.51% 47.32 47.65 16,850,000 16,900,000
All options granted and accepted can be exercised in whole or in part within 5 years from the date of grant.
Other than the Plan, certain of the Company’s subsidiary companies have issued equity-settled share-based payments to
certain of their employees. The aggregate amount of the share-based payments recognised by these companies is not material
to the Group.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2008 2007 Average exercise Average exercise price in HK$ price in HK$ per share Options per share Options
At 1 January 30,153,000 30,989,000
Granted – – 47.32 18,500,000
Exercised 22.10 (343,000 ) 22.25 (19,336,000 )
Lapsed 47.32 (50,000 ) – –
At 31 December 29,760,000 30,153,000
Weighted average remaining contractual life 2.95 years 3.95 years
Details of share options exercised during the year:
Exercise price Number of sharesHK$ 2008 2007
18.20 – 6,840,000
19.90 – 4,905,000
22.10 343,000 5,991,000
47.32 – 1,600,000
343,000 19,336,000
The related weighted average share price at the time of exercise was HK$35.19 (2007: HK$32.57) per share.
147CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
28 Reserves
a Group
Capital Investment Exchange Share redemption Capital Goodwill revaluation fluctuation Hedging General Retainedin HK$ million premium reserve reserve (Note) reserve reserve reserve reserve profits Total
At 1 January 2008 25,415 21 240 (1,738 ) 4,756 3,016 185 765 26,248 58,908
Share of reserves of associated companies – – 1 – (75 ) 71 (181 ) – (26 ) (210 )
Share of reserves of jointly controlled entities – – 78 – 7 86 (23 ) 1 – 149
Exchange translation differences – – – – – 1,701 – – – 1,701
Reserves released on disposal of jointly controlled entities – – – – – (93 ) – – – (93 )
Loss on cash flow hedge of financial instruments – – – – – – (3,459 ) – – (3,459 )
Fair value gain on other financial assets – – – – (453 ) – – – – (453 )
Fair value released on disposal of financial assets – – – – (4,095 ) – – – – (4,095 )
Transfer to profit and loss account on impairment of financial assets – – – – 98 – – – – 98
Transfer from retained profits – – – – – – – 220 (220 ) –
Issue of shares pursuant to the Plan 8 – (1 ) – – – – – – 7
Premium on shares issued (Note 27 & 5) 11,044 – 641 – – – – – – 11,685
Loss attributable to shareholders of the Company – – – – – – – – (12,662 ) (12,662 )
Dividends (Note 11) – – – – – – – – (2,415 ) (2,415 )
Share repurchase – 8 – – – – – – (656 ) (648 )
Released upon lapse of share options of a subsidiary – – (1 ) – – – – – 1 –
At 31 December 2008 36,467 29 958 (1,738 ) 238 4,781 (3,478 ) 986 10,270 48,513
Retained byCompany and subsidiary companies 36,467 29 823 (1,738 ) 112 4,782 (3,390 ) 970 (2,703 ) 35,352
Jointly controlled entities – – 103 – 16 132 (19 ) 16 3,573 3,821
Associated companies – – 32 – 110 (133 ) (69 ) – 9,400 9,340
36,467 29 958 (1,738 ) 238 4,781 (3,478 ) 986 10,270 48,513
Note: The Goodwill reserve is as a result of goodwill arising on acquisitions prior to year 2001 which under the then prevailing Accounting Standards was reflected in reserves rather than as a separate assets.
148 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
28 Reserves continued
a Group continued
Capital Investment Exchange Share redemption Capital revaluation fluctuation Hedging General Retainedin HK$ million premium reserve reserve Goodwill reserve reserve reserve reserve profits Total
At 1 January 2007 24,956 20 73 (2,494 ) 1,350 806 130 465 20,326 45,632
Share of reserves of associated companies – – 30 – 28 24 (5 ) – – 77
Share of reserves of jointly controlled entities – – 6 – 9 46 3 1 – 65
Exchange translation differences – – – – – 2,168 – – – 2,168
Reserves released on disposal of associated companies – – 6 – – – – – – 6
Disposal of interests in subsidiary companies – – (18 ) 756 – (28 ) – – (756 ) (46 )
Gain on cash flow hedge of financial instruments – – – – – – 57 – – 57
Fair value gain on other financial assets – – – – 3,292 – – – – 3,292
Transfer from profits – – – – 77 – – 299 (299 ) 77
Issue of share pursuant to the Plan 459 – (36 ) – – – – – – 423
Profit attributable to the equity holders of the Company – – – – – – – – 10,843 10,843
Dividends (Note 11) – – – – – – – – (3,756 ) (3,756 )
Share repurchase – 1 – – – – – – (110 ) (109 )
Share-based payment – – 179 – – – – – – 179
At 31 December 2007 25,415 21 240 (1,738 ) 4,756 3,016 185 765 26,248 58,908
RepresentingAt 31 December 2007 after proposed final dividend 57,138
2007 Final dividend proposed 1,770
58,908
Retained byCompany and subsidiary companies 25,415 21 181 (1,738 ) 4,561 3,174 69 745 11,713 44,141
Jointly controlled entities – – 23 – 9 46 5 17 3,373 3,473
Associated companies – – 36 – 186 (204 ) 111 3 11,162 11,294
25,415 21 240 (1,738 ) 4,756 3,016 185 765 26,248 58,908
149CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
28 Reserves continued
b Company
Capital redemption Capital Hedging Share Retainedin HK$ million reserve reserve reserve premium profits Total
At 1 January 2008 21 164 (50 ) 25,415 16,782 42,332
Issue of shares pursuant to the Plan – (1 ) – 8 – 7
Loss on cash flow hedge of financial instruments – – (2,247 ) – – (2,247 )
Premium on shares issued – 641 – 11,044 – 11,685
Loss attributable to shareholders (Note 10) – – – – (10,302 ) (10,302 )
Dividends (Note 11) – – – – (2,415 ) (2,415 )
Share repurchase 8 – – – (656 ) (648 )
At 31 December 2008 29 804 (2,297 ) 36,467 3,409 38,412
At 1 January 2007 20 56 8 24,956 14,935 39,975
Share-based payment – 144 – – – 144
Issue of shares pursuant to the Plan – (36 ) – 459 – 423
Loss on cash flow hedge of financial instruments – – (58 ) – – (58 )
Profit for the year available for distribution (Note 10) – – – – 5,713 5,713
Dividends (Note 11) – – – – (3,756 ) (3,756 )
Share repurchase 1 – – – (110 ) (109 )
At 31 December 2007 21 164 (50 ) 25,415 16,782 42,332
RepresentingAt 31 December 2007 after proposed final dividend 40,562
2007 Final dividend proposed 1,770
42,332
150 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
29 Borrowings
a
Group Companyin HK$ million 2008 2007 2008 2007
Bank loans unsecured 37,577 21,246 28,483 15,799
secured 8,478 211 – –
46,055 21,457 28,483 15,799
Other loans unsecured 4,040 3,945 – –
50,095 25,402 28,483 15,799
Amounts repayable within one year included under current liabilities (2,243 ) (402 ) (1,246 ) –
Total long term borrowing 47,852 25,000 27,237 15,799
Short term borrowingsBank loans unsecured 6,704 2,924 3,355 1,686
secured 324 323 – –
7,028 3,247 3,355 1,686
Other loans unsecured 6 5 – –
secured 105 – – –
111 5 – –
Amounts repayable within one year included under current liabilities 2,243 402 1,246 –
Total of bank and other loans included under current liabilities secured 490 328 – –
unsecured 8,892 3,326 4,601 1,686
Total borrowings 57,234 28,654 31,838 17,485
Note:i) Bank loans and other loans of the Group not wholly repayable within five years amounted to HK$16,850 million (2007: HK$9,677 million).
ii) On 1 June 2001, CITIC Pacific Finance (2001) Limited, a wholly owned subsidiary of the Company, issued and sold a total of US$450 million principal amount of 7.625% guaranteed notes due 2011 (‘Guaranteed Notes’) for refinancing the indebtedness of the Company and for general corporate purposes, to investors pursuant to purchase agreements dated 24 May 2001 and 1 June 2001. All of the Guaranteed Notes remained outstanding at the end of the year.
iii) On 26 October 2005, CITIC Pacific Finance (2005) Limited, a wholly owned subsidiary of the Company, issued and sold JPY 8.1 billion in aggregate principal amount of guaranteed floating rate note due 2035 (‘JPY Notes’) to investors for general corporate purposes pursuant to the subscription agreement dated 26 October 2005. All of the JPY Notes remained outstanding at the end of the year.
iv) Bank loans and other loans, other than the JPY Notes, are fully repayable before 2032 and bear interest at the prevailing market rate.
v) As at 31 December 2008, certain of the Group’s inventories, deposits, accounts receivable, properties under development and self-used properties with an aggregate carrying value of HK$746 million (2007: HK$423 million) were pledged to secure loans and banking facilities granted to certain subsidiary companies of the Group. In addition, assets of HK$15.1 billion of the iron ore mining project were pledged under the project finance arrangement. Shipbuilding contracts of HK$5.1 billion for the 12 ships relating to the project were also pledged as security for the ships financing.
151CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
29 Borrowings continued
b The maturity of the Group’s and the Company’s long term liabilities is as follows:
Group Companyin HK$ million 2008 2007 2008 2007
Bank loans are repayablein the first year 2,242 397 1,246 –
in the second year 5,625 2,527 2,992 570
in the third to fifth years inclusive 21,867 9,286 15,975 5,991
after the fifth year 16,321 9,247 8,270 9,238
46,055 21,457 28,483 15,799
Other loans are repayablein the first year 1 5 – –
in the second year – – – –
in the third to fifth years inclusive 3,510 3,510 – –
after the fifth year 529 430 – –
4,040 3,945 – –
50,095 25,402 28,483 15,799
c The exposure of the Group’s total borrowings to interest-rate changes and the contractual repricing dates are as follows:
Groupin HK$ million 2008 2007
At 31 December Total borrowings 51,308 24,273
Effect of interest rate swaps (7,744 ) (5,342 )
Exposure of borrowings to interest–rate changes 43,564 18,931
Repricing dates One year One year or less or less
The effective interest rate per annum on the Group’s borrowings after reflecting the impact of interest rate swaps was
as follows:
2008 2007
Total borrowings 4.7% 5.5%
d The fair value of borrowings is HK$53,033 million (2007: HK$28,654 million). The fair values are estimated as the present
value of future cash flows, discounted at current market interest rates for similar financial instruments.
152 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
29 Borrowings continued
e The carrying amounts of the total borrowings are denominated in the following currencies:
Group Companyin HK$ million 2008 2007 2008 2007
Hong Kong dollar 14,886 8,575 13,983 7,255
US dollar 30,165 14,016 17,298 9,780
Renminbi 10,970 4,833 – –
Other currencies 1,213 1,230 557 450
57,234 28,654 31,838 17,485
The Group has the following undrawn borrowing facilities:
in HK$ million 2008 2007
Floating rate expiring within one year 3,032 5,572
expiring beyond one year 17,285 15,018
20,317 20,590
30 Financial Risk Management
Financial Risk FactorsThe Group is exposed to a variety of financial risks and manages them through a combination of financial instruments.
In response to losses arising from the Group’s structured forward contracts reported elsewhere, an Asset and Liability
Management Committee (‘ALCO’) was set up by the board in October 2008 to oversee and monitor the exposures of
the Group.
Financial risk management is centralised at head office level but execution and monitoring of specific risks and raising
finance may be delegated to business units.
153CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
30 Financial Risk Management continued
a Exposure to Interest Rate FluctuationsThe Group aims to maintain a suitable mixture of fixed rate and floating rate borrowings in order to stabilise interest costs
despite rate movements. The Group uses interest rate swaps and other instruments to modify the interest rate characteristics
of its borrowings. As at 31 December 2008, HK$13.7 billion (2007: HK$8.5 billion) of the Group’s total borrowings were
effectively paying fixed rate and the remaining were effectively paying a floating rate of interest.
At 31 December 2008, if interest rates had been 100 basis points higher / lower, with all other variables held constant, the
hypothetical impact is summarised as follows:
100 basis points higher 100 basis point lower Hypothetical Hypothetical Hypothetical Hypothetical impact on impact on impact on impact onin HK$ million profit / (loss) equity profit / (loss) equity
Bank borrowings (190 ) – 190 –
Cash & deposits 157 – (157 ) –
Derivatives 82 2,113 (89 ) (2,375 )
At 31 December 2007, if interest rates had been 100 basis points higher / lower, with all other variables held constant, the
hypothetical impact is summarised as follows:
100 basis points higher 100 basis point lower Hypothetical Hypothetical Hypothetical Hypothetical impact on impact on impact on impact onin HK$ million profit / (loss) equity profit / (loss) equity
Bank borrowings (91 ) – 91 –
Cash & deposits 76 – (76 ) –
Derivatives 45 126 (45 ) (128 )
b Exposure to Foreign Currency FluctuationsCITIC Pacific conducts its business mainly in Hong Kong, mainland China and Australia. Therefore it is subject to the risk
of changes in the foreign exchange rates of the HK Dollars, US Dollars, Renminbi and Australian Dollars and to a lesser
extent, Japanese Yen, Euro and Swedish Krona. To minimise currency exposure, non HK Dollar assets are usually financed
by borrowings in the same currency as the asset or cash flow from it. Achieving this objective is not always possible due to
limitations in financial markets and regulatory constraints, particularly on investment into mainland China as the Renminbi
is currently not a freely convertible currency and ‘Registered Capital’, which usually accounts for no less than 25% of the total
investment amount for projects in mainland China, is required to be paid in foreign currency. As the Group’s investment in
mainland China expands, CITIC Pacific has an increasing exposure to the Renminbi.
The future cash flow of the Group’s Australian iron ore mining project is denominated in USD and this is its functional
currency. A substantial portion of the project infrastructure / pre-completion operating expenditure is, and is projected to
be, denominated in Australian Dollars and other non-USD currencies.
Contracts with a maximum deliverable amount of A$2.9 billion as at 31 December 2008 were retained to meet the AUD
requirements of the Australian mining operations into USD. Of this A$0.9 billion has been restructured to plain-vanilla
forward contracts and thus became effective hedges for accounting purposes. As at 31 December 2008, leveraged foreign
exchange contracts with a maximum deliverable amount of A$2.0 billion had not been restructured and therefore changes on
their fair value continue to be recognised in the profit and loss account. CITIC Pacific intends to restructure these contracts in
2009. Until restructured, a one cent movement in the Australian Dollar exchange rate to the USD will have
an effect on the Group’s profit / (loss) of approximately HK$150 million.
154 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
30 Financial Risk Management continued
b Exposure to Foreign Currency Fluctuations continued
Foreign exchange forward contracts are employed to manage other non-USD currency exposures where these exposures are
material, and where the cost of the hedging instrument is not prohibitively expensive compared to the underlying exposure.
CITIC Pacific funded the iron ore mining project and the acquisition of vessels by USD loans to match the future cash flow
of these assets. Foreign exchange forward contracts are employed to minimise currency exposure for other USD loans and
a JPY Bond.
As described in Note 5, the Group entered into various leveraged foreign exchange contracts in respect of its Australian iron
ore mining operation. As set out in Note 5, these contracts gave rise to significant losses and the majority of such contracts
were novated to the CITIC Group.
Sensitivity analysis
The following table indicates the approximate change in the Group’s profit / (loss) and equity in response to reasonably
possible changes in the foreign exchange rates to which the Group has significant exposure at the balance sheet date.
The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance
sheet date, and that all other variables, in particular interest rates, remain constant.
Group Hypothetical Hypothetical increase in decrease in foreign foreign exchange Effect on Effect on exchange Effect on Effect onin HK$ million rates profit / (loss) equity rates profit / (loss) equity
2008USD 1% (83 ) – 1% 83 –
RMB* 2% 171 – 2% (128 ) –
AUD* 10% 1,264 473 10% (1,264 ) (473 )
YEN 10% (51 ) 2 10% 51 (2 )
SEK 15% – 33 15% – (33 )
EURO 5% 2 – 5% (3 ) –
2007USD 1% (39 ) – 1% 39 –
RMB 5% 16 – 5% (16 ) –
AUD* 5% 38 102 5% (70 ) (102 )
YEN 5% (8 ) – 5% 8 –
SEK 1% – 8 1% – (8 )
EURO 5% 3 – 5% (3 ) –
* Certain leveraged foreign exchange contracts were outstanding as at 31 December 2007 and 2008. The knock out features of these contracts implies that the positive impact from significant appreciation of AUD and RMB on profit and / or equity will be capped at a certain levels.
c Price RiskThe Group is exposed to equity securities price risk because investments held by the Group are classified on the consolidated
balance sheet as available-for-sale. At 31 December 2008, if there had been a 5% change in the market value of available-
for–sale securities with all other variables held constant, the Group’s equity would have increased / (decreased) by HK$34
million (2007: HK$351 million). The Group is subject to commodity price risks such as iron ore and coal. The Group has not
entered into derivatives to manage such exposures.
155CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
30 Financial Risk Management continued
d Credit ExposureThe Group’s credit risk is primarily related to repayment of cash and deposits placed with banks and the continued ability
of the banks to deliver on foreign exchange and derivatives. Operating businesses have trade and accounts receivables.
The Group’s cash and deposits with bank are placed with major financial institutions. Counterparty limits are closely
monitored for all financial institutions with whom the Group is doing business. The Group only deals with international
financial institutions with an investment grade credit rating except for leading PRC financial institutions that do not have an
international credit rating. The amount of counterparties’ lending exposure to the Group is an important consideration as a
means to control credit risk.
Trade receivables are presented net of allowances for bad and doubtful debts. Credit risk in respect of trade and accounts
receivables is dispersed since the customers are large in number and spread across different industries and geographical
areas. Accordingly, the Group has no significant concentration of such credit risk. Each major operating business has a policy
of credit control in place under which credit evaluations are performed on all customers requiring credit over a certain
amount. Trade receivables are due within 15 to 90 days from the date of billing. Normally, the Group does not obtain
collateral from customers.
The maximum exposure to credit risk at the reporting date is the carrying value of each financial asset, including derivative
financial instruments, in the balance sheet after deducting any impairment allowance. None of the financial assets that are
fully performing has been renegotiated in the last year.
e Liquidity RiskLiquidity risk is managed by maintaining substantial undrawn committed credit facilities, money market lines and cash
deposits so as to avoid over reliance on any one source of funds. Refinancing is allocated such that there is a reasonable
amount coming due in any one period. In addition, the Company has established co-operative agreements with major
PRC banks. These arrangements can substantially shorten the credit approval processes when applying for RMB loans.
The Group’s liquidity management procedures involve regularly projecting cashflows in major currencies, and considering
the level of liquid assets and new financings necessary to meet these cash flow requirements.
The table below analyses the Group’s financial liabilities that will be settled on a net basis into relevant maturity groupings
based on the remaining period from the balance sheet date to their maturity date. The amounts disclosed in the table are
the contractual undiscounted cash flows, based on interest or exchange rates (where applicable) prevailing at the balance
sheet date.
Less than Between Betweenin HK$ million 1 year 1 and 2 years 2 and 5 years Over 5 years
At 31 December 2008Bank borrowings 10,720 6,772 27,473 20,683
Derivative financial instruments 666 780 1,893 4,677
Trade creditors and accounts payable 12,985 507 8 –
At 31 December 2007Bank borrowings 5,129 3,833 15,321 13,239
Derivative financial instruments 56 7 40 2
Trade creditors and accounts payable 10,204 156 301 –
156 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
30 Financial Risk Management continued
e Liquidity Risk continued
The table below analyses the Group’s derivative financial instruments that will be settled on a gross basis into relevant
maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. The
amounts disclosed in the table are the contractual undiscounted cash flows, based on interest or exchange rates (where
applicable) prevailing at the balance sheet date.
Less than Between Betweenin HK$ million 1 year 1 and 2 years 2 and 5 years Over 5 years
At 31 December 2008Forward foreign exchange contracts – cash flow hedges outflow (2,275 ) (1,334 ) (2,561 ) –
inflow 2,012 1,136 2,105 –
Forward foreign exchange contracts – not qualified for hedge accounting outflow (11,207 ) (9,788 ) (334 ) (201 )
inflow 10,019 8,695 339 131
At 31 December 2007Forward foreign exchange contracts – cash flow hedges outflow (2,425 ) (219 ) (15 ) –
inflow 2,597 216 15 –
Forward foreign exchange contracts – not qualified for hedge accounting outflow (4,891 ) (2,101 ) (3,045 ) –
inflow 4,973 2,123 3,049 –
f Fair Value Estimationi) The fair value of outstanding derivative transactions is calculated based on the price quotations obtained from major
financial institutions. Fair value of loans receivable is estimated as the present value of future cash flows, discounted at the
current market interest rates for similar financial instruments.
The fair value of borrowings is disclosed in Note 29(d). The fair values are estimated as the present value of future cash flows,
discounted at current market interest rates for similar financial instruments.
ii) The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date.
iii) The carrying value less impairment provision of trade and other receivables and trade and other payables are a reasonable
approximation of their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting
the future contractual cash flows at the current market interest rate that is available to the Group for similar financial
instruments.
iv) Certain financial instruments that fail to demonstrate, either at inception or throughout the life of the hedge, that the
hedge is highly effective, do not meet hedging requirements. The related foreign currency and interest rate exposure is
evaluated at fair values at period ends with movements thereon dealt with in the profit and loss account.
157CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
31 Capital Risk Management
The Group’s primary objective when managing capital is to safeguard the Group’s ability to provide returns for shareholders
and to support the Group’s stability and growth. The Group regularly reviews and manages its capital structure to maintain a
balance between the higher shareholders’ returns that might be possible with higher levels of borrowings and the advantages
and security afforded by a strong shareholders’ equity position, and makes adjustments to the capital structure in light of
changes in economic conditions.
The Group’s gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash
and bank deposits. Total capital is calculated as equity, as shown in the consolidated balance sheet, plus net debt.
The gearing ratios at 31 December 2008 and at 31 December 2007 were as follows:
in HK$ million 2008 2007
Total borrowings 57,234 28,654
Less: cash and bank deposits 18,296 8,045
Net debt 38,938 20,609
Equity attributable to the equity holders of the Company 49,971 59,793
Total capital 88,909 80,402
Gearing ratio 44% 26%
32 Derivative Financial Instruments
Group 2008 2007in HK$ million Assets Liabilities Assets Liabilities
Qualified for hedged accounting – cash flow hedgeInterest-rate instruments – 4,150 3 52
Forward foreign exchange instruments 21 990 176 8
21 5,140 179 60
Not qualified for hedged accountingInterest-rate instruments 222 458 113 53
Forward foreign exchange instruments 1,008 4,127 109 22
1,230 4,585 222 75
1,251 9,725 401 135
Less: current portionInterest-rate instruments 50 63 – 57
Forward foreign exchange instruments 966 2,980 251 9
1,016 3,043 251 66
235 6,682 150 69
158 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
32 Derivative Financial Instruments continued
Company 2008 2007in HK$ million Assets Liabilities Assets Liabilities
Qualified for hedged accounting – cash flow hedgeInterest-rate instruments – 2,380 3 52
Forward foreign exchange instruments 1,011 1,011 184 184
1,011 3,391 187 236
Not qualified for hedged accountingInterest-rate instruments 68 393 80 55
Forward foreign exchange instruments 1,410 1,850 100 50
1,478 2,243 180 105
2,489 5,634 367 341
(Note) (Note)Less: current portionInterest-rate instruments 28 63 – 57
Forward foreign exchange instruments 1,348 1,686 240 214
1,376 1,749 240 271
1,113 3,885 127 70
Note:As at 31 December 2008, there was one Novation Contract (see Note 5 for definition) economically but not yet legally transferred to CITIC Group. As a result, the underlying derivative liability of this Novation Contract amounting to HK$944 million was recorded as a contractual obligation of the Company, and a related derivative asset of HK$944 million, reflecting the economic effect of the transfer of the Novation Contract to CITIC Group was also recorded. The derivative asset was first recorded at the time of economic transfer of the liability to CITIC Group. From the date of economic transfer, changes in fair value of the underlying derivative liability reflected in profit and loss account were fully off-set by equal but opposite changes in the fair value of the derivative asset. This Novation Contract was subsequently legally transferred to CITIC Group in March 2009.
i) forward foreign exchange instruments
The notional amount of the outstanding forward foreign exchange instruments at 31 December 2008 was HK$34,513 million
(2007: HK$13,463 million).
The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates
during the next 48 months. Gains and losses recognised in the hedging reserve in equity (Note 28) on forward foreign
exchange contracts as of 31 December 2008 shall be recognised in the profit and loss account in the period or periods during
which the hedged transaction affects the profit and loss account.
159CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
32 Derivative Financial Instruments continued
ii) interest rate instruments
Interest on our borrowings is mainly calculated at a margin added to the Hong Kong Inter-bank offered rate (HIBOR) or
London Inter-bank offered rate (LIBOR). The notional amount of outstanding interest rate swap contracts at 31 December
2008 was HK$29,626 million (2007: HK$12,806 million). In addition, the Group had cross currency interest rate swap
contracts with aggregate notional amount of HK$1,195 million (2007: HK$400 million). At 31 December 2008, the fixed
interest rates under interest rate swaps varied from 3% to 7.23% per annum (2007: 2.95% to 7.23% per annum). Gains and
losses on interest rate swap contracts qualifying for hedge accounting as of 31 December 2008 are recognised in the hedging
reserve in equity (Note 28) and will be released to the profit and loss account to match relevant interest payments.
The Group also entered into various interest rate swaptions. Certain swaptions have been converted into plain-vanilla interest
rate swaps during 2008. These swaptions do not qualify for hedge accounting and gave rise to a net loss of HK$236 million
during 2008. The swaptions were converted into plain-vanilla interest rate swaps that qualify as hedges from the date of
conversion.
33 Deferred Taxation
a GroupDeferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of
16.5% (2007: 17.5%). The components of deferred tax assets and (liabilities) recognised in the consolidated balance sheet
and the movements during the year are as follows:
Depreciation Revaluation of allowances in investment properties excess of and valuation Mining assets related depreciation Losses of other properties and others Totalin HK$ million 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Deferred tax arising fromAt 1 January, as previously reported (504 ) (528 ) 239 186 (1,083 ) (1,010 ) (646 ) (499 ) (1,994 ) (1,851 )
Derecognition of deferred tax liability (Note 21) – – – – – – 507 507 507 507
At 1 January, as restated (504 ) (528 ) 239 186 (1,083 ) (1,010 ) (139 ) 8 (1,487 ) (1,344 )
Exchange adjustment (5 ) (1 ) (4 ) – (61 ) (54 ) 6 1 (64 ) (54 )
Charged to reserve – – – – – – 518 (51 ) 518 (51 )
Effect of tax rate change 30 – (9 ) – 12 180 – – 33 180
Charged / (credited) to consolidated profit and loss account (15 ) 25 634 53 (51 ) (173 ) 667 (97 ) 1,235 (192 )
Others (32 ) – 75 – 30 (26 ) (51 ) – 22 (26 )
At 31 December (526 ) (504 ) 935 239 (1,153 ) (1,083 ) 1,001 (139 ) 257 (1,487 )
Groupin HK$ million 2008 2007
Net deferred tax assets recognised on the consolidated balance sheet 1,967 100
Net deferred tax liabilities recognised on the consolidated balance sheet (1,710 ) (1,587 )
257 (1,487 )
160 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
33 Deferred Taxation continued
b Deferred Tax Assets UnrecognisedThe Group has not recognised deferred tax assets in respect of the following items:
Groupin HK$ million 2008 2007
Deductible temporary differences 42 37
Tax losses 2,962 2,499
Taxable temporary differences (92 ) (109 )
2,912 2,427
Companyin HK$ million 2008 2007
Deductible temporary differences 20 19
Tax losses 543 494
563 513
Note:Deductible temporary differences and tax losses in certain tax jurisdictions of HK$167 million (2007: HK$196 million) will expire within the next five years. The remaining amounts do not expire under current tax legislation.
c Deferred Tax Liabilities not RecognisedAt 31 December 2008, temporary differences relating to the undistributed profits of subsidiary companies amounted to
HK$808 million (2007: HK$613 million). Deferred tax liabilities of HK$162 million (2007: HK$123 million) have not been
recognised in respect of the tax that would be payable on the distribution of these retained profits as the Group controls
the dividend policy of these subsidiary companies and it has been determined that it is probable that profits will not be
distributed in the foreseeable future.
34 Provisions
Mining assetsin HK$ million Site restoration Mining rights Total
Balance at 1 January 2008 – – –
Provisions made during the year 54 680 734
Balance at 31 December 2008 54 680 734
Site restoration
A provision of HK$54 million was made during the year ended 31 December 2008 in respect of a subsidiary’s obligation
to rectify environmental damage with a corresponding increase in mining intangible assets. Amortisation of this asset will
occur from production date, using a units of production method.
Mining rights
In accordance with the mining right / lease agreements entered into by two subsidiaries of the Company, the Group is
committed to pay a defined royalty if either of the two subsidiaries’ production is less than 6 million tonnes by March 2013.
A provision has been made for this commitment with a corresponding increase in mining intangible assets. Amortisation
of this asset will occur from production date, using the units of production method.
161CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
35 Capital Commitments
Groupin HK$ million 2008 2007
Authorised but not contracted for (Note a) 277 254
Contracted but not provided for (Note b) 25,565 27,338
Companyin HK$ million 2008 2007
Contracted but not provided for 459 557
Note a
Groupin HK$ million 2008 2007
Authorised but not contracted for Analysis by business Civil infrastructure – 13
CITIC 1616 14 9
Dah Chong Hong 263 232
277 254
Note b
Groupin HK$ million 2008 2007
Contracted but not yet paid nor accrued Analysis by business Special steel 7,954 1,904
Iron ore mining 14,765 19,476
Property Mainland China 2,698 4,215
Hong Kong 13 14
CITIC 1616 4 8
Dah Chong Hong 101 13
Other investments 30 1,708
25,565 27,338
162 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
36 Operating Lease Commitments
The future aggregate minimum lease payments under non-cancellable operating leases as at 31 December were as follows:
Group Companyin HK$ million 2008 2007 2008 2007
Properties commitmentsWithin 1 year 261 159 61 2
After 1 year but within 5 years 404 257 81 –
After 5 years 220 137 – –
885 553 142 2
Other commitmentsWithin 1 year 30 21 – –
After 1 year but within 5 years 40 46 – –
After 5 years 4 11 – –
74 78 – –
959 631 142 2
37 Business Combinations and Disposals
a Purchase of Subsidiary CompaniesIn 2008, Dah Chong Hong acquired certain subsidiaries engaged in food trading, manufacturing of electrical appliances and
food processing businesses.
In 2008, CITIC 1616 acquired from ChinaMotion NetCom Holdings Limited the entire equity interest in ChinaMotion
NetCom Limited and its subsidiaries, apart from one subsidiary of CMN Holdings in which only a 49% equity interest
was acquired.
The aggregated fair value of the acquired net assets as at the dates of acquisition was HK$522 million. Since acquisition these
businesses contributed aggregate revenues of HK$1,011 million and aggregate net loss of HK$20 million. The aggregate
revenue and net loss of the acquired companies as though the acquisition for the business combinations effected during the
year had been at the beginning of that year are HK$4,064 million and HK$34 million respectively.
163CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
37 Business Combinations and Disposals continued
a Purchase of Subsidiary Companies continued
2008 Acquiree’s carrying amount beforein HK$ million combination
Net assets acquiredProperty, plant and equipment 469
Leasehold land 39
Intangible assets 204
Interest in associated company 3
Inventories 504
Debtors, accounts receivable, deposits and prepayments 530
Cash and bank deposits 196
Deferred tax assets 28
Assets 1,973
Bank loans and other loans (529 )
Creditors, accounts payable, deposits and accruals (1,140 )
Provision for taxation (2 )
Deferred tax liabilities (3 )
Liabilities (1,674 )
299
Fair value adjustments 223
Fair value of net assets acquired 522
Gain on acquisitions (3 )
Minority interests (174 )
Goodwill 318
663
Satisfied byCash 663
Analysis of the net outflow of cash and cash equivalents in respect of the purchase of subsidiary companies
in HK$ million 2008
Cash consideration 663
Cash and bank deposits acquired (196 )
Repayment of debt (75 )
392
164 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
37 Business Combinations and Disposals continued
b Proceeds on Disposal of Interests in Subsidiary Companies
in HK$ million 2008 2007
Net assets disposed ofProperty, plant and equipment 25 65
Intangible assets – 48
Leasehold land 330 –
Associated companies – 1
Inventories – 1
Debtors, accounts receivable, deposits and prepayments – 34
Cash and bank deposits – 53
Creditors, accounts payable, deposits and accruals – (326 )
Minority interests – (6 )
355 (130 )
Profit on disposal 170 43
Release of reserve – 64
525 (23 )
Satisfied byCash 525 108
Accounts payable – (131 )
525 (23 )
Analysis of the net inflow of cash and cash equivalents in respect of the disposal of subsidiary companies
in HK$ million 2008 2007
Cash consideration 525 108
Cash and bank deposits disposed of – (53 )
525 55
During the year, a property subsidiary company of the Company has been disposed of. In 2007, certain subsidiary companies
in the telecommunications business were disposed.
165CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
38 Contingent Liabilities
Companyin HK$ million 2008 2007
The Company provided guarantees in respect of bank facilities as follows:Subsidiary companies 29,041 6,362
Jointly controlled entity 27 –
Other performance guarantees and potential penaltiesSubsidiary companies 851 –
Jointly controlled entity 250 –
30,169 6,362
In addition, the Company together with other beneficial shareholders of Western Harbour Tunnel Company Limited
(‘WHTCL’) have agreed jointly and severally to guarantee the Government of the Hong Kong Special Administrative Region
that WHTCL will complete the Western Harbour Crossing (‘Crossing’). The Crossing was completed in April 1997, pending
the issuance of the Maintenance Certificate.
The Maintenance Certificate was issued subsequently in February 2009.
39 Material Related Party Transactions
Related parties are those parties that have the ability to control the other party or exercise significant influence in making
financial and operating decisions. Parties are also considered to be related if they are subject to common control.
Following the issuance of shares to CITIC Group on 24 December 2008 (see Note 27(i)), CITIC Pacific Limited is controlled
by CITIC Group which owns 57.6% of the Company’s shares as at 31 December 2008. CITIC Group is subject to the control of
the PRC Government which also controls a significant portion of the productive assets and entities in the PRC (collectively
referred as the ‘state-owned enterprises’). Therefore, transactions with state-owned enterprises are regarded as related party
transactions from 24 December 2008.
For the purpose of related party disclosure, the Group has identified to the extent practicable whether its customers and
suppliers are state-owned enterprises. Many state-owned enterprises have multi-layered corporate structures and the
ownership structures change over time as a result of transfers and privatisation programs. Management believes that
meaningful information relating to significant related party transactions has been adequately disclosed.
In addition to information disclosed elsewhere in the consolidated financial statements, the following is a summary of
significant related party transactions between the Group and its related parties, including other state-owned enterprises,
during the year and balances arising from related party transactions at the balance sheet date.
166 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
39 Material Related Party Transactions continued
The Group had the following significant transactions and balances with related parties:
in HK$ million 2008 2007
Transactions with CITIC Group(i) Non-recurring transactions Consideration received from issue of shares 11,625 –
Consideration paid for transferring the Novation Contracts (9,155 ) –
2,470 –
(ii) Recurring transactions Management fee payable to CITIC Hong Kong (Holdings) Limited, a substantial shareholder of the Company (2 ) (2 )
Transactions with jointly controlled entities(i) Recurring transactions Interest income 56 51
Dividend income 314 832
Sales 38 19
408 902
Transactions with associated companies(i) Recurring transactions Interest income 68 109
Dividend income 775 790
Sales 199 168
Service income 61 6
1,103 1,073
Purchases 62 31
Rental charge 69 41
Service charge 21 3
152 75
(ii) Non-recurring transactions Consideration paid for acquisition of a subsidiary and a debt 142 –
Transactions with state-owned banksAs at 31 December 2008, there were derivative liabilities of HK$5,815 million (2007: HK$Nil) in relation to outstanding
financial instrument transactions with state-owned banks. They are included in the balances disclosed in Note 32.
in HK$ million 2008
Balances with fellow subsidiary companies within CITIC Group(i) Bank balances 1,754
(ii) Bank loans and other loans 734
Balances with state-owned enterprises, including banks(i) Bank balances 7,903
(ii) Bank loans and other loans 26,095
(iii) Trade, other receivables and prepayments 1,121
(iv) Trade payables and other payables 978
(v) Non-current deposits: payment for construction of cargo ships with the refund guaranteed by a state-owned bank 3,754
167CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
39 Material Related Party Transactions continued
Transactions and Balances with China Metallurgical Group, a State-Owned EnterpriseOn 24 January 2007, Sino Iron Pty Ltd., a wholly owned subsidiary of the Company, (‘Sino Iron’) entered into a general
construction contract (‘the Contract’) with China Metallurgical Group Corp., a state-owned enterprise (‘MCC’). Pursuant
to the Contract, MCC is responsible for the procurement of mining equipment, design, construction and installation of
the primary crushing plant, concentrator, pellet plant, material handling system, camp and other auxiliary infrastructure
facilities (‘the Works to be conducted by MCC’) at an amount not exceeding US$1,106 million (approximately HK$8,630
million). The price for the Works to be conducted by MCC is capped and no increase to the contract sum can be made unless
otherwise agreed by both parties. On 20 August 2007, Sino Iron entered into supplemental agreements with MCC in relation
to, amongst other things, the adjustment to the scope of the Works to be conducted by MCC to extend to the second 1 billion
tonnes of iron ore to be extracted and the revision of the contract sum to US$1,750 million (approximately HK$13,650
million).
Sino Iron and MCC also agreed that the remaining works (other than Works to be conducted by MCC) shall be contracted
out to third parties directly by Sino Iron (‘the Third Party Contracts’) and such works shall be managed by MCC. Sino Iron
agreed to pay 1% of the relevant price in respect of the Third Party Contracts (excluding any fee for training, interest,
transportation, insurance and tax expenses) to MCC as management fees.
in HK$ million 2008
Deposit paid to MCC 1,654
Trade payable and other payable to MCC 821
On 20 August 2007, Catak Enterprises Corp., a wholly subsidiary of the Company, and MCC entered into an agreement for
the disposal by the Group of a 20% interest in Sino Iron for a consideration equivalent to 20% of all the funds provided to
Sino Iron Holdings Pty Limited by the Group for the development of the iron ore project up to the date of completion
together with interest.
40 Ultimate Holding Company
With effect from 24 December 2008, the Directors regard CITIC Group, a state-owned enterprise established under the laws
of the PRC, as being the ultimate holding company of the Company.
41 Post Balance Sheet Events
Sino Iron entered into a gas supply agreement on 6 January 2009 with Apache Northwest Pty Ltd and Santos Offshore Pty
Limited. Under the contract, Apache and Santos will supply natural gas over seven years commencing in the second half
of 2011. The gas will be sourced from the offshore Reindeer gas field being developed by Apache and Santos and delivered
onshore close to the project’s location. The contract carries an initial price with periodic adjustments for changes in the
consumer price index in Australia. Beginning in the fourth year, the price is indexed to international oil prices. Assuming an
oil price of US$50 per barrel, the value of the contract is estimated to be US$1.3 billion. The Gas Supply Agreement became
unconditional on 5 March 2009.
42 Comparative Figures
Comparative figures have been adjusted to conform with the current presentation.
43 Approval of Financial Statements
The financial statements were approved by the Board of Directors on 25 March 2009.
44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies
The following are the principal subsidiary companies, jointly controlled entities and associated companies of the Group
which in the opinion of the directors, principally affect the results and net assets of the Group. To give full details of all
companies would in the opinion of the directors result in particulars of excessive length.
168 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
Special Steel
Subsidiary companies
Daye Special Steel Co., Ltd. People’s Republic of China 58.13 – 58.13 449,408,480 RMB 1 Steel making
Sino-foreign joint stock
limited company*
Hubei Xin Yegang Steel Co., Ltd. People’s Republic of China 100 – 100 N/A N/A Steel making
Sino-foreign equity
joint venture*
Jiangsu CP Xingcheng People’s Republic of China 77.78 – 77.78 N/A N/A Steel making
Special Steel Co., Ltd. Sino-foreign equity
joint venture*
Jiangyin CP Xingcheng People’s Republic of China 80 – 80 N/A N/A Processing and
By-products Recycling Sino-foreign equity recycling of
Co., Ltd. joint venture* metal slag and
sale of its related
recycled products
Jiangyin CP Xingcheng People’s Republic of China 80 – 80 N/A N/A Production and sale
Industry Gas Co., Ltd. Sino-foreign equity of oxygen, liquefied
joint venture* oxygen, nitrogen
and argon
Jiangyin Xingcheng Metalwork People’s Republic of China 79.49 – 79.49 N/A N/A Developing and
Co., Ltd. Sino-foreign equity production of
joint venture* alloy and metal
hardware
Jiangyin Xingcheng Special People’s Republic of China 79 – 79 N/A N/A Steel making
Steel Works Co., Ltd. Sino-foreign equity
joint venture*
Jiangyin Xingcheng Steel People’s Republic of China 80 – 80 N/A N/A Steel making
Products Co., Ltd. Sino-foreign equity
joint venture*
Jiangyin Xingcheng Storage People’s Republic of China 80 – 80 N/A N/A Loading and
and Transportation Co., Ltd. Sino-foreign equity unloading
joint venture* business
Tongling Xin Yaxing Coking & People’s Republic of China 92.485 – 92.485 N/A N/A Production and sale
Chemical Co., Ltd. Sino-foreign equity of coal gas, coke
joint venture* and chemical
related products
Interest in equity Particulars of shares held by issued shares†
Place of incorporation / Attributable principal place of operation to the Company Subsidiary No. of Par Name kind of legal entity* Group % % % shares value Principal activities
169CITIC Pacific Annual Report 2008
44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued
Interest in equity Particulars of shares held by issued shares†
Place of incorporation / Attributable principal place of operation to the Company Subsidiary No. of Par Name kind of legal entity* Group % % % shares value Principal activities
Notes to the fiNaNcial statemeNts
Wuxi Xingcheng Steel People’s Republic of China 80 – 80 N/A N/A Production and sale
Products Co., Ltd. Sino-foreign equity of ferrous metal
joint venture* materials
江陰泰富興澄特種材料有限公司 People’s Republic of China 79 – 79 N/A N/A Production and sale
Sino-foreign equity of hot iron and the
joint venture* related products
湖北中特新化能科技有限公司 People’s Republic of China 100 – 100 N/A N/A Production and sale
Wholly foreign-owned of coal gas, coke
enterprise* and chemical
related products
湖北新冶鋼特種鋼管有限公司 People’s Republic of China 100 – 100 N/A N/A Production of
Wholly foreign-owned seamless steel tube
enterprise*
銅陵新亞星港務有限公司 People’s Republic of China 100 – 100 N/A N/A Port construction,
Wholly foreign-owned operation and
enterprise* related service
Jointly controlled entities
Shijiazhuang Iron & Steel People’s Republic of China 65 – 65 – – Production and sale
Co., Ltd. Sino-foreign equity of special steel and
joint venture* related products
中信泰富工程技術(上海)有限公司 People’s Republic of China 70 – 70 N/A N/A Engineering service
Sino-foreign equity for metallurgy
joint venture* and mining
Iron Ore Mining
Subsidiary companies
Korean Steel Pty Ltd Australia 100 – 100 10,000 N/A Mining extraction
and processing
of magnetite
MetaGas Pty Ltd Australia 100 – 100 5,000,010 N/A Gas procurement
and trading
Pastoral Management Pty Ltd Australia 100 – 100 5,000,010 N/A Pastoral lease
management
Sino Iron Pty Ltd Australia 100 – 100 11,526 N/A Mining extraction
and processing
of magnetite
44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued
Interest in equity Particulars of shares held by issued shares†
Place of incorporation / Attributable principal place of operation to the Company Subsidiary No. of Par Name kind of legal entity* Group % % % shares value Principal activities
170 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
Property
People’s Republic of China
Subsidiary companies
CITIC Pacific (Yangzhou) People’s Republic of China 100 – 100 N/A N/A Property
Properties Co., Ltd. Wholly foreign-owned development
enterprise*
Shanghai Super Property People’s Republic of China 100 – 100 N/A N/A Property investment
Co., Ltd. Wholly foreign-owned and management
enterprise*
上海中信泰富廣場有限公司 People’s Republic of China 100 – 100 N/A N/A Property investment
Wholly foreign-owned and management
enterprise*
上海老西門新苑置業有限公司 People’s Republic of China 100 – 100 N/A N/A Property
Sino-foreign co-operative development
joint venture*
上海珠街閣房地產開發有限公司 People’s Republic of China 100 71.59 28.41 N/A N/A Property
Wholly foreign-owned development
enterprise*
上海利通置業有限公司 People’s Republic of China 90 85 5 N/A N/A Property
Sino-foreign equity development
joint venture*
中信泰富(上海)物業管理有限公司 People’s Republic of China 100 – 100 N/A N/A Property
Wholly foreign-owned management
enterprise*
中信泰富萬寧發展有限公司 People’s Republic of China 100 – 100 N/A N/A Property
Wholly foreign-owned development
enterprise*
中信泰富萬寧(聯合)開發有限公司 People’s Republic of China 80 – 80 N/A N/A Property
Limited liability company* development
江陰興澄置業有限公司 People’s Republic of China 56 – 56 N/A N/A Property
Sino-foreign equity development
joint venture*
無錫太湖景發展有限公司 People’s Republic of China 70 – 70 N/A N/A Sports related
Sino-foreign equity services
joint venture*
無錫太湖苑置業有限公司 People’s Republic of China 70 – 70 N/A N/A Property investment
Sino-foreign equity and development
joint venture*
無錫太湖美生態環保有限公司 People’s Republic of China 70 – 70 N/A N/A Environmental
Sino-foreign equity protection
joint venture*
44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued
Interest in equity Particulars of shares held by issued shares†
Place of incorporation / Attributable principal place of operation to the Company Subsidiary No. of Par Name kind of legal entity* Group % % % shares value Principal activities
171CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
萬寧中意發展有限公司 People’s Republic of China 99.9 – 99.9 N/A N/A Property
Sino-foreign co-operative development
joint venture*
萬寧中榮發展有限公司 People’s Republic of China 99.9 – 99.9 N/A N/A Property
Sino-foreign co-operative development
joint venture*
萬寧中宏發展有限公司 People’s Republic of China 99.9 – 99.9 N/A N/A Property
Sino-foreign co-operative development
joint venture*
萬寧仁和發展有限公司 People’s Republic of China 99.9 – 99.9 N/A N/A Property
Sino-foreign co-operative development
joint venture*
萬寧仁信發展有限公司 People’s Republic of China 99.9 – 99.9 N/A N/A Property
Sino-foreign co-operative development
joint venture*
萬寧百納發展有限公司 People’s Republic of China 99.9 – 99.9 N/A N/A Property
Sino-foreign co-operative development
joint venture*
萬寧金信發展有限公司 People’s Republic of China 99.9 – 99.9 N/A N/A Property
Sino-foreign co-operative development
joint venture*
萬寧金誠發展有限公司 People’s Republic of China 99.9 – 99.9 N/A N/A Property
Sino-foreign co-operative development
joint venture*
萬寧創遠發展有限公司 People’s Republic of China 99.9 – 99.9 N/A N/A Property
Sino-foreign co-operative development
joint venture*
寧波信富置業有限公司 People’s Republic of China 99.29 – 99.29 N/A N/A Property
Sino-foreign co-operative development
joint venture*
Jointly controlled entities
上海瑞明置業有限公司 People’s Republic of China 50 50 – – – Property
Sino-foreign equity development
joint venture*
上海瑞博置業有限公司 People’s Republic of China 50 50 – – – Property
Sino-foreign equity development
joint venture*
中船置業有限公司 People’s Republic of China 50 50 – – – Property
Sino-foreign equity development
joint venture*
44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued
Interest in equity Particulars of shares held by issued shares†
Place of incorporation / Attributable principal place of operation to the Company Subsidiary No. of Par Name kind of legal entity* Group % % % shares value Principal activities
172 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
Hong Kong
Subsidiary companies
Borgia Limited Hong Kong 100 – 100 2 HK$ 10 Property investment
Broadway Centre Property Hong Kong 100 – 100 2 HK$ 1 Property
Management Company management
Limited
Famous Land Limited Hong Kong 100 – 100 2 HK$ 1 Property investment
Glenridge Company Limited Hong Kong 100 – 100 2 HK$ 10 Property investment
Hang Luen Chong Investment Hong Kong 100 – 100 80,000 HK$ 100 Property investment
Company, Limited
Hang Luen Chong Property Hong Kong 100 – 100 2 HK$ 1 Property
Management Company, management
Limited
Hang Wah Chong Investment Hong Kong 100 – 100 50,000 HK$ 100 Property investment
Company Limited
Lindenford Limited Hong Kong 100 – 100 2 HK$ 10 Property investment
Linking Wisdom Ltd. British Virgin Islands 100 – 100 1 US$1 Property
development
Neostar Investment Limited Hong Kong 100 – 100 2 HK$ 1 Property investment
Pacific Grace Limited Hong Kong 100 – 100 2 HK$ 1 Property investment
Tendo Limited Hong Kong 100 – 100 2 HK$ 10 Property investment
Associated companies
CITIC Tower Property Hong Kong 40 – 40 – – Property
Management Company management
Limited
Goldon Investment Limited Hong Kong 40 – 40 – – Property investment
Hong Kong Resort Company Hong Kong 50 – 50 – – Property
Limited ‡ development
Konorus Investment Limited Hong Kong 15 – 15 – – Property
development
Shinta Limited ‡ Hong Kong 20 – 20 – – Property investment
44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued
Interest in equity Particulars of shares held by issued shares†
Place of incorporation / Attributable principal place of operation to the Company Subsidiary No. of Par Name kind of legal entity* Group % % % shares value Principal activities
173CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
Power Generation
Jointly controlled entities
Huaibei Guoan Power People’s Republic of China 12.5 – 12.5 – – Building, possession
Company Ltd. Sino-foreign equity and operation of
joint venture* power plant and
sale of electricity
Inner Mongolia Electric Power People’s Republic of China 35 – 35 – – Coal-fired power
(Holdings) Company Limited Sino-foreign equity station operation
joint venture* and management
Jiangsu Ligang Electric Power People’s Republic of China 56.31 – 56.31 – – Electric power
Company Limited Sino-foreign equity plant construction
joint venture* and operation
Jiangyin Ligang Electric People’s Republic of China 54.31 – 54.31 1,170,000,000 RMB 1 Electric power plant
Power Generation Foreign investment construction and
Company Limited stock company* operation
Sunburst Energy Development People’s Republic of China 65 – 65 – – Investment holding
Co., Ltd. Sino-foreign equity
joint venture*
Widewin Investments Limited ‡ British Virgin Islands 37.5 – 37.5 – – Investment holding
Wuxi Taihu Lake Pumped People’s Republic of China 70 – 70 – – Pumped storage
Storage Power Co., Ltd. Sino-foreign equity hydraulic power
joint venture* plant construction
Zhengzhou Xinli Electric People’s Republic of China 50 – 50 – – Electric power plant
Power Co., Ltd. Sino-foreign equity construction and
joint venture* operation
Associated companies
North United Power People’s Republic of China 20 20 – – – Investment holding
Corporation Sino-foreign equity and generation
joint venture* of electricity
and heat and
related businesses
44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued
Interest in equity Particulars of shares held by issued shares†
Place of incorporation / Attributable principal place of operation to the Company Subsidiary No. of Par Name kind of legal entity* Group % % % shares value Principal activities
174 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
Aviation
Associated companies
Cathay Pacific Airways Hong Kong 17.49 1.82 15.67 – – Airlines and related
Limited@ services
Swire Aviation Limited Hong Kong 33.3 – 33.3 – – Investment in
Hong Kong Air
Cargo Terminals
Limited with 10%
effective interest
Civil Infrastructure
Tunnels
Subsidiary companies
New Hong Kong Tunnel Hong Kong 70.8 – 70.8 75,000,000 HK$ 10 Tunnel operation
Company Limited
Jointly controlled entities
Hong Kong Transport, Hong Kong 35 – 35 – – Management,
Logistics and Management operation and
Company Limited maintenance of
the Cross-Harbour
Tunnel
Western Harbour Tunnel Hong Kong 35 – 35 – – Franchise to
Company Limited ‡ construct and
operate the
Western Harbour
Crossing
Environmental
Jointly controlled entities
Changzhou CGE Water Co., Ltd. People’s Republic of China 24.01 – 24.01 – – Production and
Sino-foreign equity supply of tap water
joint venture*
Ecoserve Limited Hong Kong 50 – 50 – – Design, construction
and operation of
refuse transfer
station
Bloom Country Limited Hong Kong 50 – 50 – – Investment holding
Veolia Water (Kunming) Hong Kong 25 – 25 – – Investment holding
Investment Limited
44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued
Interest in equity Particulars of shares held by issued shares†
Place of incorporation / Attributable principal place of operation to the Company Subsidiary No. of Par Name kind of legal entity* Group % % % shares value Principal activities
175CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
Associated companies
Enviropace Limited Hong Kong 20 – 20 – – Design, construction,
operation and
management of
chemical waste
treatment plant
Green Valley Landfill, Limited Hong Kong 30 – 30 – – Landfill construction
and operation
South China Transfer Limited Hong Kong 30 – 30 – – Design, construction
and operation of
transfer station
上海老港生活垃圾處置有限公司 People’s Republic of China 30 – 30 – – Design, construction
Sino-foreign equity and operation
joint venture* of landfill
CITIC 1616 Holdings Limited Hong Kong 52.57 – 52.57 1,977,731,283 HK$0.10 Investment holding
(Listed in Hong Kong) §
Dah Chong Hong Holdings Hong Kong 56.67 – 56.67 1,797,833,000 HK$0.15 Investment holding
Limited
(Listed in Hong Kong) §
Other investments
Subsidiary companies
CITIC Pacific China Holdings People’s Republic of China 100 – 100 N/A N/A Investment holding
Limited Wholly foreign-owned
enterprise*
CITIC Pacific Communications Bermuda 100 – 100 100,000 HK$ 1 Investment holding
Limited
CITIC Pacific Finance (2001) British Virgin Islands 100 100 – 1,000 US$ 1 Financing
Limited
CITIC Pacific Finance (2005) British Virgin Islands 100 100 – 1 US$ 1 Financing
Limited
Dah Chong Hong (Engineering) Hong Kong 100 – 100 1,301,000 HK$ 100 Engineering services
Limited
44 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued
Interest in equity Particulars of shares held by issued shares†
Place of incorporation / Attributable principal place of operation to the Company Subsidiary No. of Par Name kind of legal entity* Group % % % shares value Principal activities
176 CITIC Pacific Annual Report 2008
Notes to the fiNaNcial statemeNts
Jointly controlled entities
CITIC Capital Holdings Limited Hong Kong 50 – 50 – – Investment holding
CITIC Guoan Co., Ltd. People’s Republic of China 50 – 50 – – Investment holding
Sino-foreign equity
joint venture*
上海國睿生命科技有限公司 People’s Republic of China 24.94 24.94 – – – Research and
Sino-foreign equity development of
joint venture* tissue engineering
products
山東新巨龍能源有限責任公司 People’s Republic of China 30 – 30 N/A N/A Coal ores
Sino-foreign equity construction
joint venture* and sales
Associated companies
Cheer First Limited ‡ Hong Kong 40 – 40 – – Financing
Companhia de Macau 20 20 – – – Telecommunications
Telecomunicacoes services
de Macau S.A.R.L.
Treasure Trove Limited Hong Kong 50 – 50 – – Financing
Jiangsu Wal-Mart Stores People’s Republic of China 35 – 35 – – Hypermarket
Co., Ltd. Wholly foreign-owned business
enterprise*
Wal-Mart East China Stores People’s Republic of China 35 – 35 – – Hypermarket
Co., Ltd. Wholly foreign-owned business
enterprise*
Note:† Represented ordinary shares, unless otherwise stated.‡ Affiliates which have been given financial assistance by the company or its subsidiaries at 31 December 2008.§ Subsidiaries separately listed on the main board of the Hong Kong Stock Exchange and including their respective group companies.# In accordance with the Joint Venture agreement, none of the participating parties has unilateral control over the economic activity.@ The Group can exercise significant influence over Cathay Pacific Airways Ltd, through its representation on the board and various board committees
allowing participation in financial and operating policy decisions but not necessarily control of those policies.
177CITIC Pacific Annual Report 2008
Independent Auditor’s report to the shareholders of CITIC Pacific Limited(incorporated in Hong Kong with limited liability)
We have audited the consolidated financial statements of CITIC Pacific Limited (the ‘Company’) and its subsidiaries (together
the ‘Group’) set out on pages 102 to 176, which comprise the consolidated and company balance sheets as at 31 December
2008, and the consolidated profit and loss account, the consolidated statement of changes in equity and the consolidated
cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Directors’ Responsibility for the Financial StatementsThe directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated
financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute
of Certified Public Accountants and the Hong Kong Companies Ordinance. This responsibility includes designing,
implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate
accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our
opinion solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance and for no other
purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of
Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and true and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and
of the Group as at 31 December 2008 and of the Group’s loss and cash flows for the year then ended in accordance with
Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies
Ordinance.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 25 March 2009
Independent Auditor’s Report
178 CITIC Pacific Annual Report 2008
Major Properties Held by the Groupas at 31 December 2008
Leasehold Group’s Approximate grossAddress / Lot no. expiry interest % floor area (sq. m.) Existing use
Major Properties Held for Investment
* 1. Skyway House, 3 Sham Mong Road, Kowloon, H.K. 2041 100 29,000 Office and Shop 2604/2700th shares of KIL No. 9706 & the extension thereto
2. Block C of Yee Lim Industrial Centre, 2-28 Kwai Lok Street, 2047 100 30,000 Cold Storage and 2-6 Kwai Hei Street, Kwai Chung, H.K. and Godown 4000/9000th shares of KCTL No. 333
3. Honest Motors Building, 9-11, Leighton Road, Causeway Bay, H.K. 2880 100 4,000 Office and Shop HKIL No. 5431 and 5432
4. Wyler Centre 1, Basement 1 & 2 and Parking Spaces 2047 100 37,000 Industrial Nos P50 and P51 on 2nd Floor of Wyler Centre 2, 192-210 Tai Lin Pai Road, Kwai Chung, H.K. 5779/11152th shares of and in the Remaining Portion of KCTL No. 130 & the extension thereto
5. Broadway Centre, No. 93 Kwai Fuk Road, Kwai Chung, 2047 100 32,000 Godown and H.K. KCTL No. 435 Ancillary Office
6. DCH Commercial Centre, No. 25, Westlands Road, Quarry Bay, 2047 100 36,000 Office and H.K. HKIL No. 8854 Restaurants
7. CITIC Tower, No. 1 Tim Mei Avenue, Central, H.K. HKIL No. 8822 2047 40 52,000 Office and Shop
8. CITIC Square, 1168 Nanjing Xi Lu, Jingan District, Shanghai, the PRC 2044 100 114,000 Office and Shop
9. Royal Pavilion, 688 Hua Shan Lu, Jingan District, Shanghai, the PRC 2063 100 35,000 Residential
10. New Westgate Garden, Retail portion (Phase 1), Xi Zang Nan Lu / 2072 100 18,000 Shop Jian Guo Dong Lu, Huang Pu District, Shanghai, the PRC
* excluding a petrol filling station on the ground floor with an ancillary storage tank in part of the basement and a storeroom on the first floor
Leasehold Group’s Approximate grossAddress / Lot no. expiry interest % floor area (sq. m.) Existing use
Major Properties Held for Sale
1. Grand Court, 109-135 Kadoorie Avenue, Kowloon, H.K. 2081 100 13,000 Residential Subsections 1 and 2 and the Remaining Portion of Section D of KIL No. 2657
2. New Westgate Garden, Phase 1 2072 100 9,000 Residential Xi Zang Nan Lu / Jian Guo Dong Lu, Huang Pu District, Shanghai, the PRC
179CITIC Pacific Annual Report 2008
Estimated Approximate Approximate Stage of completion Leasehold Group’s site area gross floorLocation / Lot no. completion date Classification expiry interest % (sq. m.) area (sq. m.)
Major Properties Under Development
1. New Westgate Garden, Resettlement 2014 Residential 2072 100 35,300 137,000 Phase 2, Xi Zang Nan Lu / in progress & Shop Jian Guo Dong Lu, Huang Pu District, Shanghai, the PRC
2. Shanghai Lu Jia Zui, Phase 1 2010 Office, Hotel, 2044 50 249,400 847,000 New Financial District Construction – 2015 Residential – 2074 Project, the PRC in progress & Shop
3. Residential Development, Phase 2 – 4 in phases Residential, 2045 100 796,800 606,000 Qing Pu District, Construction from 2009 Shop & – 2077 Shanghai, the PRC in progress onwards Hotel
4. Commercial Development, Construction 2010 Office and 2047 90 13,300 53,000 Sichuan Bei Lu Metro Station, in progress – 2011 Shop – 2057 Hong Kou District, Shanghai, the PRC
5. Commercial Development, Design in after Office and 2047 100 16,400 66,000 No 10, Hainan Road, progress 2011 Shop – 2057 Hong Kou District, Shanghai, the PRC
6. Residential and Design in in phases Office, Hotel, 2046 100 156,000 538,000 Commercial Development, progress from 2012 Residential – 2076 Jiading New City Metro Station, onwards & Shop Jiading District, Shanghai, the PRC
7. Commercial Project, Construction 2009 Office and 2045 99.3 39,500 98,000 Jiang Dong District, in progress Shop Ningbo, the PRC
8. Residential Development, Phase 1 & 2 in phases Residential 2045 100 328,600 437,000 Yangzhou, the PRC Construction from 2009 & Shop – 2075 in progress onwards
9. Residential Development Construction 2010 Residential 2046 56 91,300 178,000 Jiangyin, the PRC in progress – 2011 & Shop – 2076
10. Residential Development, Construction in phases Residential 2043 70 2,110,300 249,000 Binhu District, in progress from 2010 & Shop – 2073 Wuxi, the PRC onwards
11. Resort Development, Phase 1 in phases Residential, 2057 80 – 99.9 6,710,100 1,653,000 Shenzhou Peninsula, Construction from 2010 Shop & – 2078 Wanning, Hainan, the PRC in progress onwards Hotel
12. Industrial Development Design in 2010 Industrial 2047 100 4,300 9,000 Lots 392 and 393 in D.D.127, progress Kiu Tau Wai, Ping Shan, Yuen Long, H.K.
180 CITIC Pacific Annual Report 2008
Terms
Capital employed Shareholders’ funds + total debt
Cash contributed from all businesses Cash inflow to CITIC Pacific Ltd. from its subsidiary companies,
jointly controlled entities, associated companies, other investments,
including proceeds from sale of businesses
Total debt Short term and long term loans, notes and bonds
Net debt Total debt less cash and bank deposits
Total capital Shareholders’ funds + net debt
EBITDA Net profit less interest expense, taxation, depreciation and amortisation
Contribution A business’s after tax profit that contributes to unallocated central
interest, overhead and goodwill
Ratios
Earnings per share = Profit attributable to shareholders
Weighted average number of shares (by days) in issue for the year
Shareholders’ funds per share = Shareholders’ funds
Total issued and fully paid shares at end of the year
Leverage = Net debt
Total capital
Cashflow per share = Cash contributed from all businesses
Total issued and fully paid shares at end of the year
Interest cover = EBITDA
Interest expense
Definition of Terms
Contents
1 Financial Highlights
2 CITIC Pacific’s Fundamental Strengths
4 Chairman’s Letter to Shareholders
6 Business Review
6 Special Steel
18 Iron Ore Mining
28 Property
40 Other Businesses
44 Financial Review
54 Treasury Risk Management
67 10 Year Statistics
68 Human Resources
71 In the Community
72 Corporate Governance
80 Directors and Senior Managers
83 Directors’ Report
Financial Statements
102 Consolidated Profit and Loss Account
103 Consolidated Balance Sheet
104 Balance Sheet
105 Consolidated Cash Flow Statement
108 Consolidated Statement of Changes in Equity
109 Notes to the Financial Statements
177 Independent Auditor’s Report
178 Major Properties Held by the Group
180 Definition of Terms
181 Corporate Information
Corporate Information
Headquarters and Registered Office32nd Floor, CITIC Tower, 1 Tim Mei Avenue
Central, Hong Kong
Telephone: +852 2820 2111 Fax: +852 2877 2771
Websitewww.citicpacific.com contains a description of
CITIC Pacific’s business, copies of both the full and
summary reports to shareholders, announcements,
press releases and other information.
Stock Codes
The Stock Exchange of Hong Kong: 00267
Bloomberg: 267 HK
Reuters: 0267.HK
American Depositary Receipts: CTPCY
CUSIP Reference No: 17304K102
Annual Report 2008Our Annual Report is also available as a Summary Financial Report. Both documents are printed in English and
Chinese and are available on our website at www.citicpacific.com under the ‘Investor Information’ section.
Shareholders may choose to receive the Summary Financial Report or the Annual Report in printed form in
either English or Chinese or both or by electronic means. Shareholders may at any time change their choice
on these matters by writing to the Company’s Share Registrars.
Shareholders having difficulty in gaining access to these documents will promptly be sent printed copies free of
charge upon request to the Company’s Share Registrars.
Non-shareholders are requested to contact the Company Secretary, CITIC Pacific Limited, 32nd Floor, CITIC Tower,
1 Tim Mei Avenue, Central, Hong Kong, by fax: +852 2877 2771 or by email at [email protected].
Share RegistrarsShareholders should contact our Registrars,
Tricor Tengis Limited, 26th Floor, Tesbury Centre,
28 Queen’s Road East, Wanchai, Hong Kong at
+852 2980 1333, or by fax: +852 2810 8185, on
matters such as transfer of shares, change of name or
address, or loss of share certificates.
Investor RelationsInvestors, shareholders and research analysts may
contact the Investor Relations Department by
telephone at +852 2820 2004, by fax: +852 2522 5259
or at [email protected].
Financial Calendar
Annual General Meeting: 25 May 2009, 10:30 a.m. Island Ballroom, Level 5, Island Shangri-La Hotel, Two Pacific Place, Supreme Court Road, Hong Kong
CITIC Pacific Ltd 32/F CITIC Tower, 1 Tim Mei Avenue, Central, Hong KongTel: +852 2820 2111 Fax: +852 2877 2771www.citicpacific.com
Stock Code: 00267
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